Attunity Reveals Exclusive Amazon Partnership

| About: Attunity Ltd (ATTU)

This week, I had the distinct pleasure of conducting a one-on-one interview with Attunity's (NASDAQ:ATTU) CEO, Shimon Alon. As a reminder, Attunity is a member of the Poised To Triple portfolio, which I have been providing to SeekingAlpha readers since 2009.

I believe ATTU is well-positioned to benefit from the explosion in Big Data, as have Tableau (NYSE:DATA) and Datawatch (NASDAQ:DWCH). The list of Big Data beneficiaries is growing. Last week, Tibco (TIBX) and Informatica (INFA) were upgraded by Susquehanna (after TIBX delivered a Q3 beat on Thursday).

Attunity needs to reach $10.08 to be an official triple from my initiation price, but the potential is there for the stock to go much higher. In fact, I believe it could triple from current levels, as detailed by my research team's latest valuation analysis.

This belief was augmented via my interview with Mr. Alon. I came away with continued optimism over Attunity's positioning, progress, and partners (which include virtually every heavy hitter in the Big Data space). Perhaps the most exciting development was the revelation that Amazon (NASDAQ:AMZN) has selected ATTU to be its exclusive go-to-market technology for Redshift.

Redshift is AMZN's new Cloud-based Big Data offering. Attunity is providing data replication and the real-time transfer of data from databases into Big Data warehouses. Attunity is providing these services via its Cloudbeam offering. When asked how this relationship (and the company as a whole) is doing, Mr. Alon told me, "Momentum is very good".

In addition to the great Amazon news, Attunity's Replicate product line (which loads data into Big Data warehouses) has been augmented by launching a version for HP's (NYSE:HPQ) Vertica, as well as EMC Pivotal, which is already experiencing great successes. They also continue to support Microsoft's SQL Server 2012 Parallel Data Warehouse (PDW). In fact, with the exception of IBM's Netezza, ATTU is supporting all major data warehouses.

The demand for loading data into data warehouses is very high and ATTU compares well to its competition. They primarily see Oracle's (NASDAQ:ORCL) GoldenGate product and Informatica (NASDAQ:INFA). However, GoldenGate is falling out of the game, except in relatively infrequent cases where the deal focuses on Netezza (which is at the core of GoldenGate's genesis). GoldenGate has no direct communication with EMC, HP, or Microsoft. By comparison, ATTU can move data from any data warehouse, directly into virtually any database / data warehouse.

This is what Big Data is all about - replicating and loading data from any database to any data warehouse.

So again, Oracle/GoldenGate is slowly fading out of this market. Looking at Informatica, Mr. Alon said that he "likes to compete against them". Informatica can bring traditional ETL capabilities, but the market is moving toward data loading and replication. There are major differences in the time it takes to implement these solutions, as well as how fast they work.

Whereas Informatica offers more of a development tool, ATTU is an operational tool which can quickly get up and running. ATTU is also much faster in capturing changes and loading them. According to Mr. Alon, ATTU just finished a head-to-head proof-of-concept to test at a very demanding customer site. He was happy to report that neither GoldenGate nor Informatica even managed to connect. Thus, they failed to move the data.

Needless to say, this is a key differentiator for ATTU. This is just one example of how the company is becoming more competitive and gaining momentum.

The company's goals are lofty. Attunity is targeting every data warehouse that is being created, along with every data warehouse that has ever been installed. With the advent of Big Data, the need has arisen for more effective loading (or even real-time loading). When organizations start to move data into data warehouses, they soon discover there's a huge amount of change that needs to be made to the data being moved to the data warehouses. The more they use the data warehouse, the more real-time or time-effective loading they need.

A trend that our contacts have observed favors ATTU going forward. Specifically, customers are now capturing upwards of 30,000 changes per second. The newest data warehouses are the fastest growing. Accordingly, large IT companies like Teradata and EMC are competing fiercely for accounts. As part of that competition, we have found that Attunity is a common technology that most of them are touting as part of their complete solution.

We get the sense that Informatica is starting to take notice, which adds to the growing list of vendors that could potentially make a bid to acquire Attunity.

Updating Attunity's partner relationships, the company has three traditional OEMs: Microsoft, IBM, and Oracle.

Microsoft pays a fixed amount, so that's a consistent and easy source of revenue. They also have a separate relationship with Microsoft involving direct sales. Oracle varies a bit from quarter to quarter, but is a similarly consistent source of revenue. The IBM relationship was recently renegotiated and will contribute more than before. In addition, the company will get a significant uptick in maintenance revenue from the new agreement.

As those OEM relationships continue to grow, the company is ramping up relationships with companies like EMC, Kongsberg, and Infor. Infor is the most recent OEM and is led by former Oracle President, Charles Phillips. The company expects to start seeing revenue from this relationship ramp up throughout 2014. Over the past several years, Infor acquired numerous software vendors and is now looking to modernize its portfolio of technologies. They will be using Attunity to enable the data movement across these disparate platforms.

Getting back to ATTU's relationship with Amazon, AMZN is now bringing Attunity (and only Attunity) into customer events and deals for data replication and transfer. Mr. Alon was careful to point out that the relationship is new and that customers are still in the early-adopter phase (testing data in the Cloud). However, he was just as quick to point out that Attunity is quickly gaining steam there. When customers dip their toe in the water, they typically see value and start making plans for accelerated use.

Overall, Mr. Alon was quite pleased with the company's partner channel. Investors might recall the difficulty Attunity experienced in Q1. Regarding that, Mr. Alon told me, "The go-to-market activity with EMC we didn't have in Q1 is doing very nicely right now. All our existing relationships are back to normal and even better than before."

In addition, he said that the company expects some make-up revenue to flow into Q3 (and more so in Q4).

Looking at the market for data integration tools (like Attunity's), analysts are expecting the space be to a $3-7 billion market by 2016. Growth rate estimates range from 25% to 40%. Attunity has confidence in its ability to grow within this range, as it is sold alongside (as a strategic partner of) the largest players in the space, including Amazon, EMC, HP, IBM, Microsoft, and Oracle. They are also partnered with dozens of other top technology vendors, which is quickly increasing the company's reach.

Thanks to this strong and growing sales channel, the company is now augmenting its internal sales force to accelerate growth. Over the next few months, the company plans to focus its investments into hiring more salespeople, sales management, and solution specialists for geographic territories around the world. This investment is expected to continue into 2014.

At 30% growth and 20% operating margins, Attunity could deliver 65-cents of EPS in two years and still be growing the bottom line by more than 50%. Many analysts believe that a company's P/E ratio should equal its growth rate (this relationship is known as a company's PEG ratio). That would yield an aggressive $30 price target. To be more conservative, we can cut that number in half and still derive a valuation in excess of $15 per share, double its current stock price.

Disclosure: I am long ATTU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.