Here’s how Direct Insite which is a public company (DIRI) describes itself on its press and financial releases:

Direct Insite™ provides a powerful platform for unified working capital management that facilitates over $160 billion worth of transactions annually between more than 375,000 companies worldwide. Direct Insite’s clients include IBM, Hewlett-Packard, Siemens, BE Aerospace, Saint Gobain, Carlson, and one of the world’s largest financial institutions. The flagship component of Direct Insite’s unified working capital management platform is PAYBOX™, an integrated receivables solution that combines electronic invoicing, online approvals and adjustments, electronic payments, and integration with any legacy accounting, ERP or lockbox system. PAYBOX™ is primarily sold through banks to corporate users of their treasury management and lockbox services. Banks and corporations use PAYBOX™ to reduce Days Sales Outstanding, lower costs, and improve straight-through AR posting.

Those are attention-grabbing numbers and customer names in what seems like a relatively hot market.  Further, Direct Insite actually makes a little money, unlike many of their brethren focused on the AP side versus AR side of the e-invoicing equation.

Direct Insite Market Cap

What would you guess the market capitalization of Direct Insite to be (no cheating!)  If you guessed $14 million or 1.64x revenue you would be correct.  Why so low?

1.  The company has not been able to grow.  I’ve been watching it for years and it has shrunk a little in that time. $8-9 million in revenue for the last five years.

2.  The company has occasionally made a little money, but Direct Insite is no cash machine.

3.  Two customers account for 70% of Direct Insite’s revenue:  HP and IBM.  HP’s contract is cancellable on short-notice and IBM’s contracts are up for renewal at the end of this year and next.  Plenty of risk there.

4.  The company is an e-billing portal for these large customers.  There is really no network effect and HP and IBM, in particular, might be able to figure out how to solve this problem a few other ways.

Insider Buying

Even though I’ve followed the company for many years, I’m writing about it now because Direct Insite was in the Insider Trading Spotlight in Saturday’s Wall Street Journal (that tells you something about my fun-filled weekends).  It seems that one of Direct Insite’s board members, Thomas Lund, bought about $1 million (and 1 million shares) of the company’s stock (representing another 7% of the company).

In the last six months, Direct Insite has announced:

• a global bank has begun live production with Direct Insite’s PAYBOX™ working capital management platform. The bank is using PAYBOX™ to provide white-label accounts receivable automation to a leading consumer goods provider
• it had won a couple of industry accolades for its PAYBOX product
• it will begin a stock buyback program (tiny levels)

There are many ways to interpret this purchase of stock by Direct Insite’s director.

• He knows something we do not–like that the bank deal will yield a lot of revenue
• He’s just excited about the future and the awards the company has won
• He has other ideas for the company and wants 15% of it
• $1 million is not as big to him as it to me, so none of this should be over-interpreted!