Business Objects Looks Great

Sep.10.07 | About: Business Objects (BOBJ)

Business Objects (NASDAQ: BOBJ), a French company that provides business intelligence [BI] to enterprises, is riding high on superlative second quarter performance announced on July 25.

All of its 3 major revenue lines – licensed software (Q2/07 revenue $149 million, up 21% year-over-year), maintenance ($152 million, +23% yoy) and global services ($62 million, +29% yoy) – have reported strong growth, totaling $363.23 million (+23% yoy) in total revenue for the quarter.

BOBJ’s Q2/07 operating margin stands at 9.08% while its non-GAAP Operating Margin has improved by 5 percentage points, reaching 18% versus 13% in Q2/06.

Sensing better business prospects, BOBJ has been on the prowl for quite some time, acquiring lesser entities that fit into its business. Its latest acquisitions, Cartesis in June last and Inxight a month later come after a 7-month lull. Between October and December 2006, it acquired Armstrong Laing and Nsite in quick succession, having gobbled up Firstlogic earlier.

Cartesis, also a French company, is a leader in performance management software with more than 1,300 enterprise customers, 600 employees, and 200 consultants worldwide. The company achieved approximately €100M ($125M) in revenue over the last twelve months. The acquisition was an all-cash transaction of approximately €225M (approximately $300M).

Inxight is a Silicon Valley based business intelligence company that mines unstructured data to extract actionable information. Tapping into intelligence buried in Unstructured Data is a promising growth market. Aberdeen Group’s David Hatch has written a guest column on unstructured data analysis here.

David, in fact, has also discussed On-Demand Business Intelligence market dynamics, which would provide good context for understanding Business Object’s Nsite acquisition. Nsite is a Silicon Valley based software-as-a-service (SaaS) provider. The acquisition gives Business Objects access to Nsite’s on-demand application platform, engineering talent experienced in building and managing SaaS offerings, and approximately 27,000 Nsite subscribers. The acquisition will accelerate Business Object’s ability to deliver on-demand BI solutions, building upon the success of crystalreports.com.

The BI industry is experiencing a lack of adoption inside enterprise due to scarcity of knowledgeable analysts who can use these systems successfully. David presents the case that On-Demand BI may be a solution to this problem. Business Objects may be listening!

Armstrong Laing is a British company specializing in profitability management solutions that did $19 Million in 2006 sales, and was purchased for 30 Million GBP ($56 Million). FirstLogic is a data quality solution vendor that was purchased for $69 Million cash.

Clearly BOBJ is consolidating its position in the lucrative BI market, and its strategy of growth through acquisition seems to be paying off. The key to continued growth would be figuring out ways to increase adoption and usage of BI solutions inside the enterprise, as well as expanding the footprint into Small-Medium Enterprises [SME]. Overall, Business Object’s strategy of growing into Enterprise 3.0 via acquisitions should pay off handsomely.

The stock is not cheap, having gone from $20 to $45 in one year, and currently trades near its 52-week high. The P/E is 52.68.