Big Data Offers Big Opportunity for Tibco

| About: TIBCO Software, (TIBX)

Big data, some 35,000 exabytes by 2020 according to IDC, is driving organizations to boost spending on data collaboration, analyzing and solutions-oriented software. The data surge reflects a 10-fold increase from current levels. Middleware software maker Tibco Software Inc. (NASDAQ:TIBX) is positioned to share in the spending upside, despite trading 17% off its recent high.

In 2010, Gartner and IDC estimate the global middleware market rose 7.3% or 9.2%, respectively. Both peg the market in excess of $16 billion. And, while the majority of market share goes to goliaths International Business Machines (NYSE:IBM) and Oracle (NASDAQ:ORCL), Tibco is carving out sales with its service-oriented architecture, business optimization and business process management solutions.

Last quarter, Tibco's revenue increased 20% to $185.3 million, led by 29% growth in its licensing revenue to $70 million. Its license revenue growth was the highest in a decade as 108 clients inked deals in excess of $100,000, up from 97 in Q1 2010; 14 deals were done for over $1 million, up from 10 year-over-year.

The company gets 22% of its revenue from its top 10 customers; however, no account comprises more than 10% of sales. Overall, 57% of its sales come from the Americas, where sales were up 34%. A weak economy in Europe weighed on EMEA sales, which came in flat and accounted for 33% of revenue. Asia Pacific sales were up 15% and accounted for 10% of revenue.

Tibco stands to benefit as IT spending at financial institutions increases post-recession. The basket accounts for the largest percentage of Tibco's sales by sector, generating 26% of revenue. Tougher regulations, increased compliance and a move toward web- and mobile-based customer solutions offer new project upside. Outside of financials, telecom, energy, transportation, government and life sciences account for 10%, 9%, 9%, 8% and 6% of sales, respectively.

Tibco's biggest revenue generator is its service-oriented architecture line, which accounted for 55% of sales last quarter. However, fast growth in newly emerging business optimization and business process management reduced SOA's percentage from 70% year-over-year. Sales of business optimization software rose 100%, accounting for 34% of sales -- up from 22% in Q1 2010. Strength in the segment was driven by the company's BusinessEvents solution, which identifies trends by analyzing independent events to help businesses react to problems such as cancelled orders. Sales of its business process management products rose to 11% of total revenue, up from 8% year-over-year.

Analysts have underestimated the company's potential, with Tibco beating Street forecasts in each of the past four quarters. As a result, the Street has boosted its consensus 2012 EPS estimate to $1.06 from $1.02 90 days ago. The company generates $100 million in levered free cash flow, which has helped it build $1.62 per share in cash on its balance sheet while funding the buyback of 1.2 million shares last quarter.

Investors have been booking gains in Tibco since May as they look to de-risk into the seasonal summer slowdown. But once attention shifts back to finding growth stocks benefiting from the big data trend, look for Tibco shares to resume their march higher into year-end.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TIBX over the next 72 hours.

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