Scanning the 2015 predictions on Breakingviews, we read with interest the concerns about Big Data. Everywhere you go, it’s a hot button topic, with every firm needing a new “chief data officer,” talking about “data governance” and how they’re going to leverage the power of internal data to do something cool. Big data, the apparent successor term to quantitative analytics, just keeps getting sexier – it’s the 2015 version of revenge of the nerds. We take a look at a company selling big data solutions – Informatica Corp. (INFA.O).
McKinsey & Co. breathlessly opined in 2011 that “big data will become a key basis for competition, underpinning new waves of productivity growth, innovation and consumer surplus.” Certainly the invasion of analytics into many industries is well underway and Informatica has been a key beneficiary to date. On Jan. 26, Paul Singer’s Elliot Management reported that it has accumulated an 8% stake in the firm, clearly believing all the hype around the industry and wanting to get in on the action.
While the hype has been reminiscent of 1999, with big data taking the role of routers and switches, the price action has certainly been less extreme. Indeed, the company’s stock price has languished somewhat in the face of the NASDAQ composite’s near all-time high.
Source: Thomson Reuters Eikon
A sensible price/earnings ratio?
So while social media and many of the collectors of big data continue to surge, Informatica is only managing a P/E of 25. Is this the equivalent of selling picks and shovels in a new age? Should the company that’s actually selling big data solutions trade at a discount to the marketing companies that are collecting this data?
Facebook (FB.O) trades around 40 times F12M earnings, and LinkedIn (LNKD.N) around 85. Indeed, despite the recent announcement from Singer, INFA remains 50% below its 2010/2011 highs. Clearly, the market has placed INFA in the low growth bucket – alongside no-hopers like Microsoft (MSFT.O) and IBM (IBM.N) (incidentally, you can still grab Big Blue for a single digit P/E right now). Over on the winners table – Qlik (QLIK.O) and Salesforce (CRM.N) trade at P/Es in the high 80s.
Source: Thomson Reuters Eikon
Out of favor?
As you can see in the above Thomson Reuters Eikon graphic (the notations are my own), there’s a clear line between the slow growth/yesterday’s technology players and today’s winners. What’s interesting is that INFA isn’t further to the right, and I guess that’s Elliot’s play. We might also mention that the company has low and stable capital expenditures and throws off a nice amount of cash, with no long term debt.
Source: Thomson Reuters Eikon
Big data, big attraction?
It’s easy to see the attraction – an industry that, even accounting for the superlatives of management consulting, is only going from strength to strength – no meaningful debt and solid cash flows, and the U.S. tax code is practically forcing firms to borrow money to be tax efficient.
It certainly appears there’s plenty to like about Informatica’s story, both industry wide, and in the stock, that isn’t yet reflected in the share price.
Receive stories like this to your inbox as they are published. Subscribe here and follow us @Alpha_Now on Twitter or check out the Thomson Reuters Eikon blog. If you are looking to access Thomson Reuters data or analytics, register for a free trial.
