IBM (IBM 0.76%) claims that so much data has been generated in recent history that 90% of all data ever captured was obtained in the past two years. That is an astonishing number when you consider the long history of the computer. ENIAC, the Electronic Numerical Integrator and Computer, was introduced in 1946. The Internet was commercialized in 1995. The massive amounts of data being captured and crunched today herald a monumental shift in the way business is done and has created the industry known as Big Data.
Wikibon, the open source business and tech advisory shop, posits that Big Data is a $5B industry in 2012 and that it will mushroom to over $53B by 2017.
To further describe the impact this new technology will have on business information firms, let's take a look at IBM. In 2011, IBM was the largest Big Data player with $1.1B in revenue. To be extremely conservative, let's assume that IBM is able to perform at its historical growth rate of 1% CAGR and that it is able to capture the same market share in 2012. These are both safe assumptions, Big Data could be a driver of additional growth for the massive firm. With a +20% share of the 2011 market, IBM is a leg up on its competitors and could push even further ahead as the firm proves itself as the Big Data expert.
For a mature firm like IBM, a business line moving from 1% of revenue to 10% in just 5 years is a massive shift. Overall, IBM is a great investment opportunity and was the top performing tech stock of the S&P in 2011, rising 32%. Management is effectively navigating a changing market, the company continues to buy back stock and it offers a healthy dividend yield of 1.5%.
IBM is not alone in the quest for Big Data business. HP (HPQ +0.93%) has been no stranger to change in recent years. The company ousted its CEO, and hired eBay aficionado Meg Whitman. It unsuccessfully attempted to sell off its clunky, margin-diminished PC business, settling instead for a reorganization of PC, printers and tablets into the same unit.
Whitman inherited a flailing American technology company that had lost its identity. One of the bright spots for HP was the acquisition of a Big Data company. In February 2011, HP agreed to purchase Vertica and in doing so took its plunge headfirst into the Big Data market. Vertica is a market leader in big data and promises to help HP gain considerable ground in this field. HP did $550M in 2011 Big Data revenue. It also increased its dividend last year and repurchased stock. Bullish, but I still can't come close to stamping this one with as a Buy. Whitman is a great leader, but eBay and HP are very different beasts and she needs to prove she understands this business and can effectively guide the company away from its failing strategy before I would throw dollars at HP.
Another top 5 player in the Big Data market is Teradata (TDC 0.71%), with roughly 10% of its $2.2B in 2011 annual revenue coming from Big Data. On February 8th Teradata beat EPS and revenue and shares soared 8%. On the coattails of the news, management announced a $300M stock repurchase (starting to see a trend?). The stock has been on a tear this year, up 46% YTD.
Startup Splunk announced its IPO early this year in order to raise $125M. Splunk's current CEO is Godfrey Sullivan who guided Hyperion in its $3.3B sale to Oracle (ORCL +1.16%)Â in yet another Big Data strategic acquisition. A whopping 68% of Splunk's 2011 revenue was Big Data. Oracle was a big player in the space for 2011 with $425M in Big Data Revenue.
From industry titans like IBM to tech start-ups like Splunk, it is clear that Big Data is a big opportunity and a huge driver of future growth for data driven businesses. Those companies that are able to capture share and grow it will see their stocks appreciate on this high margin business.
