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What Is TIBCO Really Worth?

TIBCO Software (Nasdaq: TIBX  ) came into last week's earnings report on a full head of steam. The business intelligence expert beat Street estimates on both the top and bottom lines, making this the 15th consecutive earnings surprise. I don't see any signs of TIBCO slowing down. And yet, we're treated to a 6% discount in the wake of the report.

I don't know about you, but I smell value here.

TIBCO by the numbers
Non-GAAP earnings in the first quarter jumped 15% year-over-year to land at $0.20 per share. That's on $225.7 million in revenue, a 22% boost from the year-ago period. Looking ahead, management refreshed the share buyback plan with a $300 million authorization replacing the expiring plan.

At the midpoint of TIBCO's guidance, the next quarter would see 12% revenue growth and 7% higher earnings -- a modest outlook if I ever saw one. To put that guidance into context, TIBCO hasn't seen soft growth like that since the end of 2009. I suspect that CEO Vivek Ranadive is being modest here, though the year-ago quarter delivered monster earnings and a tough basis for comparison.

Stringing it all together
TIBCO's business vocabulary is growing. We already know about the "two-second advantage" that sets its solutions apart from the traditional database systems sold by IBM and Oracle. The idea is, instant access to complicated information can be a real-world advantage in many business situations, and TIBCO provides that.

This time, Ranadive started talking about "strings of pearls."

In this metaphor, each one of TIBCO's software tools is a pearl in its own right. There's value in using just one. But the power of these instant-results tools will increase exponentially if you string them together, like pearls on a necklace. "Leveraging all our pearls, TIBCO can provide its customers the 2-second advantage or just the right amount of information just a little bit beforehand, and yet still with enough time to actually take advantage of it," he said.

Yes, it's a metaphor, but we're not talking about some purely theoretical idea here; TIBCO reaps sales from these tool combinations. "This is incredibly powerful stuff," Ranadive said. 

The fact is, I'm completely confident walking into the office of any CEO and saying to him or her that we can move the needle on their revenue by 10% to 20%. I am having these types of meetings. Customers are seeking us out. The value we can deliver and command for these implementations is massive.

What's TIBCO really worth?
It's clear to me that TIBCO will keep growing and stealing market share from the likes of Oracle and IBM. Ranadive told me on the phone, "Quite honestly, I'm starting to see some distance between us and them. They're starting to fade further back in the mirror," as contract calls are getting less competitive.

The company's software is getting better and better at creating new revenue opportunities, reducing business risks, and making outdated business processes more efficient. Moreover, TIBCO is selling these key advantages to its customers like it never has before.

This is no overnight success, easy to duplicate. TIBCO's expertise comes from two decades of focused development in one consistent direction: toward faster and more efficient data management. If Big Blue wants what TIBCO has, it'll have to buy the company. Given that Vivek Ranadive treasures his position as an independent force that ties together systems from lots of other vendors in the data center, I don't think TIBCO is for sale.

In my eyes, TIBCO belongs in the company of specialized, high-growth software companies -- but the stock isn't really priced for it. Customer management expert (NYSE: CRM  ) trades for about 74 times forward earnings with an enterprise value to EBITDA ratio of nearly 200. Linux vendor Red Hat (NYSE: RHT  ) can be bought at 42 times forward earnings or 43 times trailing EBITDA (and I still think that Red Hat is cheap).

TIBCO's comparable ratios are much more affordable at 22 and 23, respectively. If Salesforce deserves its rich valuation, which is a debatable point, then TIBCO should fetch at least $90 per share. Using Red Hat as a template, TIBCO should double to $60 or so. The real value lies somewhere in between by my estimates.

This stock rides several unstoppable market trends at once. Chief among them, right in TIBCO's wheelhouse, is the Big Data revolution that leaves many high-powered, analytics systems gasping for air. Learn all you need to know about this game-changing macro trend, including a deep dive into another sector expert that doesn't get the market respect it deserves. Grab your copy of this special report right now -- it won't be free forever.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Oracle. Motley Fool newsletter services have recommended buying shares of TIBCO Software and Motley Fool newsletter services have recommended creating a bear put spread position in The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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