Cowen Downgrades Internap, Notes 'Execution Risk Too Much'

In a report published Friday, Cowen and Company analyst Colby Synesael downgraded the rating on

from Outperform to Market Perform, while maintaining the price target at $11. "Based on interviews with current/past employees we believe sales culture/customer service issues are greater than appreciated and could result in greater churn/lower sales and take significant time/money to fix," Synesael explained, while adding that execution risk was significantly higher than previously anticipated. The company's new CEO, Michael Ruffolo, is scheduled to hold an investor meeting for the very first time on June 8, in NYC. The analyst expects the meeting to remain positive, with the CEO sharing the reason for the change in CEO and his strategy with investors, along with his action plan to accelerate sales. However, based on interviews with past and current employees, the analyst believes that the investors are currently underappreciating the issues that plague Internap and which would require significant changes in order to be resolved. This, the analyst believes, increases the stock's risk profile, given that the issues might be more complex or take a longer time to be resolved than the management currently anticipates. "We believe Internap has significant issues related to its sales organization with each of the people we spoke with indicating a lack of sales culture and that this has resulted in a constant revolving door where good sales people leave and customers churn," Synesael stated. According to the Cowen and Company report, Internap needs to address various areas, including "1) greater support for its sales personnel be it a change in commission structure and/or the removal of red tape that prohibits them from doing their job effectively, and 2) a greater commitment to its customers which means greater interaction/communication and embracing a "the customer is always right" mentality."