This Stock Is Right on Target. Well, Almost.

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Revenues have been looking up for TechTarget (NAS: TTGT) , a specialized online content provider for corporate IT products. Despite difficult economic conditions, Tech managed to post a 12% increase in second-quarter revenues, to $28.1 million. Let's take a closer look at the numbers.

The numbers
After hitting their lows in 2009, both the top and bottom lines have been on an upward trajectory for Tech. This quarter, the company's online business, which accounted for 86% of total revenues, grew 17.5% to reach $24.2 million. However, second-quarter revenues from its events business (representing the rest of revenues) slipped to $3.9 million, from $4.4 million a year ago. The company organizes "events" to network both sides of its clientele, namely buyers and sellers of specialized IT solutions, enabling them to interact and solve challenges.

Good quarterly numbers; expensive overhead
Take a look at this chart showing operating income and net income over the past few years.

Metric

Q1
2009

Q2
2009

Q3
2009

Q4
2009

Q1
2010

Q2
2010

Q3
2010

Q4
2010

Q1
2011

Q2
2011

Operating income(2.8)(0.5)(1.6)(0.2)(2.6)1.4(0.4)3.604.0
Net income(2.3)(0.5)(1.4)(0.8)(2.3)0.4(0.6)1.3(0.1)1.8
Source: Capital IQ, a division of Standard & Poor's. Figures in millions of dollars.

The company's 2011 second-quarter net income increased to $1.8 million, from $0.4 million a year ago. Operating income also surged over that time, to $4 million from $1.4 million.

However, Tech's operating expenses -- primarily its selling and administration expenses, which on average clock a whopping $13 million -- have been eating through the company's revenues.

A debt-free company
Unlike peers such as Web.com Group (NAS: WWWW) , with a fair bit of debt on its books, Tech is debt-free. This should allow the company to assume further debt, if it so wishes, to make more strategic "tuck-in" acquisitions of undermonetized sites, just the way it did in April in the case of Computerweekly.com from the Reed Elsevier Group (NYS: RUK) .

The company is currently focusing on its "Activity Intelligence" product offering, which offers clients detailed lead data on their customers' activity. Tech is expected to release an Activity Intelligence upgrade this month.

This offering could very well be a potential growth driver, especially in today's challenging environment, where businesses need accurate and timely customer lead information.

And let's not forget about Tech's rapid international growth. Second-quarter international revenues jumped from $1.2 million a year ago to $2.2 million. This is a staggering 83% jump when compared to the tepid 8% increase in revenues from North America.  

The Foolish bottom line
TechTarget has shown a steady increase in its quarterly revenue and operating income figures. Besides that, its international operations seem to be growing rapidly. Positive quarterly net income does give me some confidence in the company's ability to generate profits in the future. However, TechTarget desperately needs to reduce operating expenses in order to stay in the green. If it can manage to do that, Fools should take a close look at this stock.

  • To add TechTarget to your Watchlist click here.
  • To add Web.com Group to your Watchlist click here.
  • To add Reed Elsevier Group to your Watchlist click here.

At the time this article was published Keki Fatakia does not own shares in any of the companies mentioned above. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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