IPOs 2021: Informatica Targets Retail Sector for Growth

According to an IDC report, the global Analytics Data Management and Integration Platforms market is estimated to grow at 16% CAGR from $31 billion in 2021 to $56 billion by 2025. Redwood Shores-based Informatica (NYSE: INFA), a leading player in the market, went public last year.

Informatica’s Offerings

Founded in 1993 by Gaurav Dhillon and Diaz Nesamoney, Informatica provides business solutions for the Cloud, big data, real-time, and streaming. The company gives the foresight to help businesses become more agile, realize new growth opportunities, and create new inventions.

I had met with Gaurav a few years ago when he walked me through his journey to setting up of Informatica. While working at his former employer, Unisys, Gaurav, and seven other co-founders had applied for a grant of $75,000 to do research into how they could use object databases to do medical imaging. They won the grant, and decided to invest the funds into creating a business that would become Informatica. They initially created a product that would take COBOL and give a code that would run on Oracle and Sun. But the product did not have many takers in the market. Instead of getting dejected, the founders analyzed the feedback from their market and realized that customers were actually looking for help in moving data, and pivoted into the integration business around data.

The founders realized that data was foundational to how digital enterprises run their businesses and make strategic decisions. Informatica soon designed its platform to enable enterprises to have access to a single source of truth for their data, thus allowing them to create 360-degree customer experiences, automate data operations across business processes and provide secure data access to their employees.

Today, the immense data creation has also led to the creation of several fragmented sources of data spread across various systems, including cloud and on-premise data warehouses, data lakes, databases, and applications. Additionally, the number of users requiring access to the data has also grown rapidly. Legacy data management systems were not built to address this growing complexity and scale. To address these challenges, Informatica created a platform that allows businesses to accurately track where their data resides, understand what relationships exist across their different data repositories, and understand who is accessing the data. Customers are able to pursue data-driven digital strategies by leveraging cloud analytics.

It offers a cloud-native platform that scans customers’ data to create contextualized metadata and manages a metadata system of record to act as a single source of truth about their data. Its AI engine, CLAIRE, helps customers access better data quicker, make contextual recommendations about data relationships, uncover novel insights about their businesses, and automate tasks that were previously manual.

Since CLAIRE is an AI engine, it benefits from powerful network effects. As more and more customers adopt CLAIRE, it is able to access and analyze new transactions, configurations, rules, and decisions. It uses this trove of information to further fine-tune its intelligence that drives further automation and delivers better insights to its customers. CLAIRE’s network effects will help drive efficiency, productivity, and intelligence gains for both existing and new customers.

Informatica’s Financials

Informatica pivoted to a primary subscription-based model in 2015. Its revenue in fiscal 2021 grew 9% to $1.4 billion and loss was $0.40 per share.

For the fourth quarter, its revenues grew 8% to $406.7 million, loss per share was $0.25.

Informatica forecasts revenues of $357-$367 million for the first quarter and $1.585-$1.605 billion for the fiscal year. The market was looking for revenues of $362.3 million for the quarter and $1.58 billion for the year. The company forecast flat free cash flow growth, and a slight decline in adjusted operating income, which was well short of the market’s expectations of a 14% growth over the year.

Informatica’s Growth

Recently, Informatica announced the launch of its Intelligent Data Management Cloud (IDMC) for Retail. The service will be offered as new built-in cloud-first with cloud-native capabilities to help the retail industry drive innovation and business value by overcoming challenges related to data fragmentation, data complexity, and lack of connected experiences in a multi-cloud, hybrid environment. IDMC for Retail provides highly personalized, digital-first customer experiences across all channels and at scale, allowing retailers to respond to dynamic, real-time customer needs by unifying customer data across multiple domains, systems, and multiple clouds. It improves customer profiles with clean, consistent, and complete information, increases self-service with search and exploration of customer relationships through both network and hierarchy views, and helps retail businesses efficiently acquire, manage, and publish relevant and trusted product content, driving seamless customer experiences.

Informatica’s products have been rated very highly by the market. Gartner has slated it as a leader in its Magic Quadrant for iPaaS for 8 years in a row. But the company faces tough competition from vendors like Microsoft, Oracle, SAP, Boomi, and Mulesoft. Informatica believes that its ability to innovate, broad ecosystem support, and leading security and scale capabilities help it stand out from the crowd.

IDC believes that global data creation will grow 23% annually through 2025. Companies like Informatica will benefit from this growth. But for now, the market is not too pleased with Informatica’s earnings outlook. It had climbed to an all-time high of $39 in December but has fallen significantly since. Post the result announcement, its stock fell over 30%. It is currently at $19.33 per share with a market capitalization of $5.24 billion.

Informatica raised $841 million at a valuation of $7.9 billion when it went public in October 2021 at a price of $29.00 per share. Informatica has had several ownership changes since it was founded. What began as a $75,000 research grant funded project had gone on to raise $13.5 million in funding before it went public in 1999. In 2015, Informatica was acquired by Permira, an international private equity firm, and Canada Pension Plan Investment Board, a global investment management organization. These two organizations had acquired Informatica in April 2015 for an estimated $5.3 billion. Informatica appears to be testing the stock markets once again.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Photo Credit: Gerd Altmann from Pixabay

This segment is a part in the series : IPOs 2021