Data Domain Crushes the Tape

About a year ago, when I talked to Data Domain (Nasdaq: DDUP  ) CEO Frank Slootman, he was upbeat about his business. He wasn't kidding. Yesterday, his company went public, and Slootman saw his stock price soar 66% to $24.95.

Tape storage has been around for decades, and it's still a big business. But the ongoing maintenance costs are high, tapes are susceptible to damage, and restoring data can be slow.

Data Domain thinks it has a much better mousetrap. The company develops and uses disk-based and so-called deduplication technology. Its system compresses stored data, squeezing much more information into a smaller, more cost-effective space. Other key features include continuous verification and compatibility with backup software from players like EMC (NYSE: EMC  ) , IBM (NYSE: IBM  ) , and Symantec (Nasdaq: SYMC  ) .

Data Domain's revenue has been sizzling. In 2006, it increased more than fivefold to $46.4 million. That growth has continued into fiscal Q1 of this year, with revenues surging 2.5 times to $20.2 million.

"Data deduplication is different, because enterprises are clamoring for new ways to protect their data, with greater efficiency and effectiveness," said Simon Robinson, Research Director of Storage at The 451 Group. He explained to me that Data Domain's hypergrowth puts it on the cutting edge of this movement. "The technology is ready, and so is the market."

The market potential for Data Domain does look promising. Robinson thinks the market will "easily" reach $1 billion by 2009.

That juicy opportunity is attracting competition from companies like EMC, Inside Value pick Symantec, Quantum (NYSE: QTM  ) , and Network Appliance (Nasdaq: NTAP  ) . But Data Domain's deduplication technology is top-notch, and the market is big enough for various players.

So for the next year or so, Data Domain should bask in its resplendent growth. And momentum investors will likely ensure that the stock has lots of fans.

Further unduplicated Foolishness:

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,831 out of 30,414 in CAPS.

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