Abundant buzz surrounded the Netezza (NYSE: NZ) IPO, and the company didn't disappoint. Following its debut yesterday, the shares skyrocketed 45% to $17.39. But while the fast-growing business offers standout technology, its market is crowded with fierce competitors.
Netezza develops so-called data warehouse appliances, which help analyze huge volumes of data to provide companies better insight on important trends. Last year, revenue surged 48% to $79.6 million. Even the company's loss of $7.9 million was nonetheless an improvement from its $13.8 million loss in 2005.
In competition with 400-pound gorillas such as EMC (NYSE: EMC), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Oracle (Nasdaq: ORCL), and Teradata, Netazza uses innovative technology to set itself apart. Its managers believe that traditional data warehouses are slower and do not allow for rich analysis. Many companies need to crunch billions of rows of data, a process that can take several weeks. Netezza claims that its systems can process that data 10 to 100 times faster than traditional approaches.
The company faces a big market opportunity. According to IDC, the data warehouse management software segment was $4 billion in 2005, and it's expected to grow to $6.3 billion by 2010.
Netezza is trading at about 12 times revenue -- a reasonable level, compared to other networking highfliers such as Riverbed Technologies (Nasdaq: RVBD).
But I'm still concerned about the competitive environment. It appears that IBM, Oracle and HP are revving up their data-warehousing offerings. And with its spinoff from NCR (NYSE: NCR), Teradata should be able to apply greater focus to this market as well. The sector is also filling up with a variety of startups such as Dataupia, Datallegro and Greenplum. While Netezza has done a fine job so far, the pressure will only increase from here.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,109 out of more than 60,000 participants in CAPS.
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