Data Domain's Good Vibrations

In late June, Data Domain (Nasdaq: DDUP  ) had one of the year's best IPOs, with the stock price surging 66%. The company offers a technology known as deduplication, which is a replacement for traditional tape backups. And there seems to be an insatiable demand for it, if the latest numbers are any indication.

Yesterday, the company announced its fiscal-second-quarter results. Over the past 12 months, revenues surged 176% to $26.5 million. The sequential increase was a juicy 31%. Data Domain also added 174 customers, for a total of 973.

There was a net loss of $1.2 million, or $0.11 per share, in the first quarter, but that included a $2.1 million charge for stock compensation. For the first half of the year, the business has generated nearly $6.9 million in operating cash flow.

Data Domain must fend off rivals such as EMC (NYSE: EMC  ) , Network Appliance (Nasdaq: NTAP  ) , and Quantum (NYSE: QTM  ) , but the company keeps up by continuing to introduce new products and innovations. For example, in Q2, it released its powerful DD580 system and has upgraded its entire product line. It's also been ramping up its sales force to meet heavy market demand. So far this year, Data Domain has added 64 sales reps.

Data Domain appears to be benefiting from a secular change in its market, as customers move away from tape technologies. On the conference call, CEO Frank Slootman said he could "feel the vibrations of growth." But any new market has volatility, and on the earnings news, Data Domain's stock price actually fell 7.6% to $22.93. This is fairly normal, especially for a company that's fresh from its IPO.

Yet for investors who like hypergrowth companies, this might be a good entry point to pick up some shares.

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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 ranked 1,951 out of more than 60,000 participants in Motley Fool CAPS.


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