Big Data and Analytics Is Where the Growth Is in Tech

The Big Data and Analytics sub-sector is experiencing rapid growth, with upstarts, such as Splunk and Tableau,growing at a blistering pace. For investors interested in fast growth in the technology sector,this is the right place to look.

Mar 13, 2014 at 4:00AM

The technology sector is one of the fastest growing sectors these days. According to FactSet, the sector saw an average revenue growth rate of 4.9% in the fourth quarter of fiscal 2013, second only to the health care sector. The Internet software and services sub-sector recorded the fastest growth at 20%. Year-to-date, the tech sector's performance, as represented by the iShares US Technology ETF (NYSEMKT:IYW), has comfortably beaten the SPDR S&P 500 ETF.

Adam Parker, head of Morgan Stanley's U.S. equity team, recently upgraded the tech sector from market weight (20%) to overweight (22%). He singled out big data and analytics as the tech sub-sector where the biggest growth will be found.

One of the biggest growers in this space has been Splunk (NASDAQ:SPLK), which provides software that enables companies to track, comb, and analyze data in real time. This software has wide applications, including the ability to track security-related activities in real time. Splunk operates alongside another newcomer, Tableau Software (NYSE:DATA), as well as older heavyweights like International Business Machines, EMC (NYSE:EMC), and Google, which runs BigQuery, a cloud-based data analytics tool.

Splunk is a relative newcomer to the market, having gone public in the spring of 2012. Like many other rapidly growing upstarts, the company does not have much in the way of earnings. But, its revenue has almost doubled in that short time, as huge buzz about the company's disruptive software helped push its market cap to $10 billion.

Splunk records positive earnings for the first time
Splunk recorded fairly good fourth-quarter results after it managed to return a profit for the first time since it started trading. Although its net income of $0.03 per share was below consensus estimates of $0.05 per share, this was the first time the company crawled out of the red zone.

Splunk's price-to-sales ratio has shot past 30, which is a princely sum to pay even for the hottest name in big data. Even insiders seem to think shares are a bit too pricey, as no insider has made open market purchases within the last 12 months.

Tableau Software's story is similar to Splunk's. The company, a leading provider of visual analytics software, became public in May 2013 at just $31 per share. Barely 10 months later, the share price has almost tripled to $91. Investors have been excited by the company's latest results after it blew away analysts' revenue expectations. Year-over-year quarterly revenue shot up an astounding 95% to stand at $81.5 million, with full-year revenue jumping 82% year-over-year to hit $232.4 million. Full-year GAAP diluted earnings for fiscal 2013 was $0.12 per share, compared to $0.00 a year earlier.

The two newcomers are, therefore, growing at a blistering pace. Tableau Software, however, pips Splunk on account of growth in both its top and bottom-lines, while Splunk is having trouble making a profit.

Splunk has also been growing inorganically through acquisitions. The company acquired Cloudmeter last December, which provides network data capture technologies. This acquisition will enhance Splunk users' ability to analyze machine data directly from their own networks, after which they can correlate it with other machine-generated data to gain better insight across Splunk's application and infrastructure management.

Splunk is also netting big customers. IDT, a leading telecom and payment services provider, announced in March that Splunk Enterprise 6 will soon become its core operational intelligence platform. IDT will replace its legacy database technology with Splunk Enterprise across its entire organization.

Splunk and Tableau Software have announced a strategic technology alliance that will leverage real-time machine data and visual analytics. As part of the deal, the latest Tableau software will incorporate Splunk Enterprise as a native data source that will use Splunk's recently launched ODBC driver. Tableau software customers will now be able to better visualize their machine data.

Slower growth, fairer valuation
At the opposite end of the spectrum are IBM and EMC. Both companies have a significant footprint in providing cutting-edge enterprise data analytics and solutions. The two may not be as dynamic as Splunk or Tableau Software, but what they lack in buzz they make up for in attractive valuations. It's quite likely that shares of both will receive a much-needed lift if big data mining remains hot property.

Google lies somewhere in the middle, between the fast growers and the slugs. The company, of course, gathers mountains of data for its own purposes. It also runs BigQuery, a cloud-based data analytics tool. Google has very sound fundamentals, too, which makes it an excellent way to play the sector without risking burning your fingers.

Foolish bottom line
Big data is the buzzword in the tech sector, at least for the moment. Newcomers are growing rapidly, and their shares are considerably more expensive than the "old boys." It would be a good idea to have a well-balanced mix of shares in your portfolio to offer you the best of both worlds.

Would you like to crawl inside Warren Buffett's head?
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Joseph Gacinga has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of EMC, Google, and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers