Oracle to Acquire Informatica in ‘09?

Includes: INFA, ORCL
by: Sramana Mitra

The leading data integration enterprise, Informatica (NASDAQ:INFA), recently announced its Q4 results. Revenue of $124.4 million grew 9% over the year but fell short of the Street’s expectations of $127 million. During the quarter, license revenue grew a record 4% over the year and contributed 46% of the total revenue. Services revenue grew 14% over the year to $67.2 million.

International orders were 41% in the quarter compared with 35% a year ago, with the increase primarily driven by growth in Latin American operations. However, International revenue contributed 34% of the total revenue in Q4, compared with 37% a year ago, due to currency depreciation.

EPS of $0.24 was marginally higher than the Street’s expectations of $0.23 and recorded a decline of 4% over the year. For the year, Informatica closed revenue at $456 million with growth of 16% since last year. EPS for the year was $0.76 compared to $0.75 a year ago.

Going forward, the company expects 2009 revenue to grow by a mid-single digit percentage and are targeting non-GAAP operating margins of 23.5% compared with the 22% attained in 2008. The company expects Q1 revenues of $104-$111 million non-GAAP EPS of $0.15-$0.17.

Informatica has been following a three-pronged strategy to tackle the recession. First, the company is diversifying beyond its primary geographic market, which was evident with the significant growth in International orders. Second, the company is trying to grow its market beyond the traditional data-warehousing segment. Third, it is expanding its product portfolio beyond the traditional ETO technology. All of these strategies have proved successful.

During the quarter, Informatica was selected by TRICARE, part of the U.S. military health system, as the standard for data integration and data quality. The cost savings potential the company is able to offer customers is also worth mentioning given that Banco Santander, the sixth-largest bank in the world, expects to reduce the cost and duration of its Banco Real merger integration IT project by 50%. In times when customers are looking to get more value for their IT investments, such savings will likely be able to bring in more business.

Informatica also introduced the Informatica On Demand Data Synchronization service for (NYSE:CRM), which enables users to use a web browser to synchronize on-premise with off-premise data in The company expanded in the OEM space through tie-ups with various partners, one of note being its agreement with Japan’s NEC Corporation, where NEC will market PowerCenter in Japan under its own brand, supported by a dedicated engineering team.

For a while, I have suggested that Informatica could be bought by Oracle. Last year, there were many significant deals in the business intelligence space. With IBM acquiring Cognos, Oracle acquiring Hyperion and SAP buying Business Objects, the larger acquisition targets have nearly vanished. However, the need for BI companies to consolidate still remains. That leaves smaller players like Actuate (NASDAQ:ACTU), MicroStrategy (NASDAQ:MSTR) and Informatica as serious acquisition targets.

Analysts believe that there are enough synergies in Informatica’s, Oracle’s (NASDAQ:ORCL) and Hyperion’s (HYSL) technologies. Oracle needs to acquire Informatica to build on its in-house data quality, profiling or metadata solutions. Informatica already has a very profitable partnership with Oracle, and its ETL installations with Oracle databases are a very attractive product offering. Add to that the fact that Informatica’s CEO Sohaib Abbasi has worked with Oracle for nearly 20 years, bringing the managerial synergies required to make the merger work.

The current economic conditions have brought the stock down to $13.17, with a market capitalization of $1.15 billion. At current prices, it could very well be a value-for-money deal for Oracle.

Disclosure: None