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Don't know Informatica? I’m not surprised. The company specializes in technical plumbing work called data integration (DI) software. It comes in many forms, but DI usually involves connectors that extract data from one source, transform it into a common format, and then load it into a new system where it can be combined with other information for analysis.
DI is usually what you need before you can have business intelligence (BI). All the big players in enterprise software offer a form of data integration to help sell their BI products, notably IBM (NYSE: IBM ) , Oracle (Nasdaq: ORCL ) , and SAP (NYSE: SAP ) .
But there's more to DI than BI. According to Fry and several others I talked with during the trip -- including NetSuite (NYSE: N ) chief executive Zach Nelson -- companies are increasingly combining software in the cloud with in-house systems, creating a Web-wide federation of data sources to be integrated. And it all points to a greater need for Informatica's suite of products.
A primer for prospective buyers
Here are three more things Fry says you should know before buying shares:
- Informatica is an early-stage growth story. Fry said that most advanced data integration -- such as combining how a simple concept such as "customer" is defined throughout the enterprise -- is hand-coded by consultants. Informatica can automate that process and make billions doing it. "These are early-stage markets that, over time, start to move from build to buy over the next five to 10 years," Fry said.
- The company could be more profitable than it is now. Fry says Informatica is being aggressive so as to capture an outsized share of the market for advanced DI software. Numbers bear this out. R&D spending rose by 35% last year, while revenue improved by 30%. That delta takes away from operating profits over the short term, but it should pay off years from now.
"Tomorrow, we could show significantly higher profits, but we look at the early markets we're in and the trends around big data and cloud computing and how that should be driving huge integration needs over the next decade," Fry said. "We would be very remiss if we didn't invest heavily against those opportunities."
- Cross-selling is fueling outsized growth. Informatica's goal is to sell more software to customers who need additional levels of integration. While everything begins with Informatica's PowerCenter suite -- a basic toolkit for creating connections between software applications -- additional services are gaining traction now that the Web is making more data available.
"So we've got a decent business on the core data integration side, but we're seeing rapid adoption and growth in areas such as master data management, data quality, and information lifecycle management," Fry said. "And each of these areas are newer areas [where] technology analysts are looking at significant double-digit growth percentages over the next several years."
They're also areas in which Informatica is deemed a leader. In its most recent "Magic Quadrant" analysis of the sector, Gartner calls Informatica the overall DI brand leader, followed by IBM, then SAP, and then Oracle.
For my own part, I've "owned" Informatica in Motley Fool CAPS for years, earning a four-bagger return on the strength of its historical DI business. You'd think I'd be tempted to sell now that the stock trades for more than 60 times earnings, but I'm not. Instead, with the use of cloud-computing applications rising rapidly, I envision a new wave of profit growth for Informatica.
Of course, Informatica isn't the only company poised to profit from cloud computing. Take a minute to watch this free video right now, and you'll walk away with a richer understanding of the cloud model and the opportunity it offers to investors.