Are There Any Tech Firms Safe from SOPA?

Now that the general public is fully aware of the Stop Online Piracy Act, many companies and private citizens have spoken out against it. The controversial bill is being debated in the House of Representatives right now, and if passed, could give the United States' attorney general full control to block and censor American websites. Moreover, the definition for a domestic website is based on the domain registrar, not the actual owner of the site. This means that a Mexican citizen owning a domain name via an American registrar would fall under the law's jurisdiction.

Yesterday, Benzinga was one of the first news agencies to cover the topic, analyzing companies that could be severely affected if the law were to be enacted. While internet-based companies, including Google (NASDAQ: GOOG), Yahoo (NASDAQ: YHOO), and Facebook are strong dissidents of the bill, one cannot help but wonder if there are any companies in the information technology space that are relatively protected from the company's ramifications.

When considering who will truly be affected, several sub-industries come to mind. Internet service providers, search engine operators, and user-driven websites are all going to face the brunt of the law's force. On the flip side, companies that deal with content management and data aggregation would not be as affected. In fact, while many of these companies' clients will be scrambling to restore order in their operations and user-base, this set of companies will retain their deal flow, perhaps even experiencing more business as clients are unsure of where to go next.

Considering that not everyone will be affected as badly by SOPA, investors may consider making a play off the hysteria resulting from Congress' deliberations. One company that investors may want to learn more about is TechTarget (NASDAQ: TTGT). TechTarget is small-cap company that acts as a liaison between IT services counter parties. It also analyzes data of website users and uses the data gathered to generate sales leads for its clients.

The first thing that some people may think about is that TechTarget could be affected severely by SOPA. While this is true, the probability is much lower than many other IT companies. TechTarget could be extremely unlucky if all its client companies become dissolute or lose a lot of operational abilities due to the law, but this scenario seems unlikely. What does seem likely, however, is that TechTarget's client websites will ramp up business with the company in order to generate more sales leads or find more connections in the IT industry to restore revenues.

TechTarget's operational history, on a quarterly basis, seems to be fairly steady. Despite volatility in its revenue number, it quickly changes operating expenses to accommodate it. Considering this versatility, TechTarget's net income figure has been fairly consistent over the last five quarters. On a stronger note, its operational cash flow over the last several quarters has been steadily increasing, primarily due to increasing income and stock based compensation. The company seems to be purchasing a lot of securities as well, perhaps to hedge constant changes in informational technology.

TechTarget operates in the information technology space, and may be one of the few companies that is marginally safe from the impending Stop Online Piracy Act. If the legislation is successfully passed, investors may want to consider taking advantage of the inevitable volatility in the technology markets. Investors should learn more about TechTarget's products, its management team, and its client base. Understanding all this info will help make an informed decision.

TechTarget is currently trading at $5.99, down about 24.5% for the year.

ACTION ITEMS:

Bullish View:
Traders who believe that TechTarget is an appropriate long investment might want to consider the following trades:

• TechTarget's business model is relatively shielded from SOPA's ramifications, preventing detrimental operational growth if SOPA is enacted.

• The firm's operations have grown at a stable rate in the past few years, indicating steady supply and demand for the company's services.

• TechTarget's stock price has reacted better to the SOPA news than many of its competitors, up about 0.5% for the week. Many other IT firms have lost several percent during the week due to SOPA.

Bearish:
Traders who believe that TechTarget is more suited for a short play may consider an alternate position:

• The company's client base could be severely compromised if SOPA is passed, having the potential to destroy over half the company's business.

• TechTarget's business is focused on internet-based companies, and ignores other aspects of information technology.

• The firm's sales generation business could be hurt significantly if SOPA affects data mining functions, which would also decimate almost half of its overall business.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.