Moving To The Cloud: Informatica And Autodesk

The business intelligence (BI) tools market continues to grow at a healthy pace, primarily driven by maintenance revenue rather than new license revenue. According to an IDC report published in mid-2009, the BI tools market is estimated at $7.8 billion in 2008, up 10.6% over 2007. SAP is the market leader in BI with a 20% share, followed by SAS with 11%. In another report published in 2009, IDC estimates the worldwide data warehouse platform software market to have grown at 11% to reach $7.2 billion in 2008. The key players in the data warehouse platform software are Oracle, IBM, and Microsoft.

A survey conducted by IDC in Asia Pacific, excluding Japan, showed that despite the economic slowdown, 61.6% of respondents expect their organizations’ data warehouses to grow in the next year.

Informatica (NASDAQ:INFA), a leading independent provider of data integration software, had a 4% market share in the overall data warehousing platform software revenue. However, in the data warehouse generation software segment, Informatica has a bigger pie of the market, as it commands a 19% market share and is a close third to IBM’s 20% contribution and SAS’s 19%.

Informatica declared its Q309 results on October 22. Revenues for Q309 were $123.4 million, up 8% from the $113.8 million recorded in Q308. License revenues in Q309 were $50.0 million, up 9% from the $45.8 million recorded in Q308. Income from operations as per GAAP was $22.3 million, up 26% from $17.7 million in Q308. GAAP net income was $16.2 million or $0.17 per share, up 21% from $13.4 million or $0.14 per share in Q308. Non-GAAP income from operations inQ309 was $30.9 million, up 22% from $25.4 million in Q308. Non-GAAP net income in Q309 2009 was $22.3 million or $0.22 per share, up over 15% from $18.9 million or $0.19 per share in Q308.

Informatica is following a three-pronged strategy to a) expand the product portfolio by targeting addition of new products every quarter, b) grow beyond the traditional data warehousing market and pursue multiple IT budgets for broader data integration, and c) expand the company’s business reach by growing geographically.

The results of this strategy were evident in the recent quarter as Informatica added big clients across the globe. In Q309, Informatica added 64 new customers, which took the total customer base to 3,857 companies. New customers include APS Healthcare, China Mobile Jiangsu, Hachette Book Group, HDFC Bank, Ruby Tuesday, the University of Michigan, and VMware. Even in a recessionary market, Informatica has managed to be appealing to its customers by providing data integration services that save money and are more nimble.

Informatica has been selected by Everbright Securities Co., Ltd., for data migration and real-time data collection to accelerate the launch of new products and services, improve risk management, and move faster in exploiting new business opportunities. The Shenzhen Stock Exchange Information Company (SSEI), a wholly-owned subsidiary of the Shenzhen Stock Exchange (SSE), has implemented the Informatica Platform as the data integration and data exchange backbone of its SWIFT (Society for Worldwide Interbank Financial Telecommunication) application infrastructure. These are big wins in a recessionary market and speak volumes for the company’s product capabilities and how important it is to its customers.

Informatica counts 84 of the Fortune 100 companies as its clients, including 3M and Dell. In the past three years the company’s revenues and earnings grew at CAGR of 16% and 17%, respectively, and this performance is visible in the movement of the stock price.

Informatica acquired Agent Logic in September 2009. The acquisition will expand the company’s target market with an additional high-growth, adjacent technology category: complex event processing (CEP). The combination of CEP and data integration enables organizations to be more responsive, adaptable, and agile.

Informatica realizes that to be successful it needs to partner, and so it has. It has teamed up with Intel to embed Informatica B2B Data Transformation software as an integral part of the Intel SOA Expressway, a software appliance that uses industry-standard technologies to simplify, accelerate, and secure message-based B2B and system-to-system solutions. It is also partnering with HP to deliver an integrated BI solution that will help customers make business decisions more quickly and optimize business performance by giving them access to more timely and accurate information.

In mid-November, Informatica launched Informatica Cloud 9, a comprehensive offering for cloud data integration. Informatica Cloud 9 is a multi-tenant, enterprise-class data integration platform-as-a-service (PaaS). The platform will not only allow cloud applications to be integrated with each other but also with on-premise systems, thus allowing developers and systems integrator (SI) partners to build, share, and reuse custom data integration and data quality mappings and run them in the cloud. This is truly a breakthrough in cloud computing.

Informatica expects revenue to be $135 million to $140 million with non-GAAP earnings per share (EPS) in a range of $0.25 to $0.28 in Q409. For fiscal 2010, the company expects $530 million to $560 million in revenues and $0.93 to $1.03 in non-GAAP EPS. According to Reuters Estimates, these figures are in line with analyst expectations.

Informatica remains an acquisition target, in my opinion. In the event of an acquisition, I believe it could get a good 50% premium, and the stock is also doing well on its own. The company is well run.

Autodesk (NASDAQ: ADSK) declared its Q310 results on November. Revenue was $417 million in Q310, flat sequentially and down 31% from Q309. Non-GAAP gross margin in Q310 was 92% up 2% Q-o-Q and down 1% Y-o-Y. The sequential margin improvement was primarily from normal seasonality in subscription fulfillments, decreased vendor costs, and a more favorable product mix. Non-GAAP operating margin, which excludes restructuring costs among other things, rose 2% Q-o-Q to 18%. Non-GAAP EPS was $0.27 in Q310, compared to $0.24 in Q210 and $0.56 in Q309.

License and other revenue was $236 million in Q310, an increase of 2% over Q210, and a decrease of 44% from Q309. Maintenance revenue was $181 million in Q310, a decrease of 2% from Q210, and 3% from Q309. Maintenance billings declined 4% Q-o-Q and 10% Y-o-Y. The company recorded a 4% sequential increase in revenue from new commercial seats. Growth in revenue from commercial new seats is an essential building block for long-term revenue growth for the company.

Revenue in the Americas increased 2% Q-o-Q to and declined 25% Y-o-Y $164 million. Revenue in the United States, Brazil, and Mexico posted sequential increases while Canada declined sequentially. EMEA revenue increased 1% Q-o-Q and decreased 38% Y-o-Y to $159 million. EMEA revenue was led by growth in Northern Europe as well as emerging countries. Revenue from Asia Pacific decreased 4% Q-o-Q and 29% Y-o-Y to $94 million. Strong sequential growth in South Korea and India was offset by sequential declines in most other countries in APAC.

Revenue from emerging economies was $62 million, a decline of 5% Q-o-Q and 46% Y-o-Y. Revenue from emerging economies represented 15% of total revenue in Q310. The company sees the emerging economy as a key component to its revenue mix and future growth.

Government business grew both sequentially and on a Y-o-Y basis as the company experienced strong growth with U.S. federal agencies. The company also experienced sequential growth in its 2D horizontal products, AutoCAD and AutoCAD LT, which were hit hard by the recession. Revenue from AutoCAD and AutoCAD LT accounted for the majority of the growth in revenue from commercial new seats. Revenue from model-based 3D design solutions was flat sequentially. Sequential growth in Civil 3D, Navisworks, Robot Structural Analysis, and Moldflow products was offset by sequential declines in the Inventor and Revit product families.

Even in a downturn market the company is seeing some very large sized deals from the larger AEC firms. A lot of this is coming from consolidation around one vendor where clients have had a heterogeneous multi-CAD environment and have now decided to go with a single vendor.

Recently, Autodesk announced its movement to the cloud. The company is working on tools that will allow users to share, edit, and collaborate online. This could be a growth area for the company, with more companies going global and having an increasing number of their employees work from remote locations.

For Q410, Autodesk expects revenue to be in the range of $420 million to $440 million. Non-GAAP EPS is expected to be in the range of $0.19 and $0.24, excluding $0.06 related to stock-based compensation expenses and $0.06 for amortization of acquisition-related intangibles.

Economies may be recovering in terms of GDP, but job losses continue, which is a key deterrent to Autodesk’s recovery. The Architecture Billings Index, a key economic indicator for Autodesk, has been down, and until it improves to above 50, the chances of Autodesk experiencing good growth are slim. This was evident in the way management was guiding cautiously and was unwilling to forecast for the long term.

While I see Informatica surging ahead in the coming quarters, driven by strong demand for data integration, Autodesk will struggle as its key target market, the SME segment, has seen a severe contraction in business and project financing has dried up. However, Autodesk is an excellent, well-run company with a great product portfolio, and as the economy comes back, it should do just fine. This is probably a reasonable buying opportunity for a long-term multi-year play. I own the stock, and I am holding it.