2012 is off to a red hot start for Big Data vendors. Last week, Splunk (SPLK) exploded on to the scene, driven by its compelling value proposition and application ecosystem. In the January quarter, Wall Street's newest darling nearly doubled its revenue to $43.2 million. These results, among other things, gave investors justification to reward SPLK with a $3 billion valuation.
Pipeline Data has been high on Big Data for over a year and SPLK's meteoric rise only fuels our enthusiasm. Its valuation presents some risk, but Splunk's positioning certainly warrants close monitoring
Among smaller caps, Attunity (ATTU) is showing impressive growth. We have highlighted Attunity on SeekingAlpha in recent months (see "Software Earnings: Attunity Reports 100% Growth; Broadvision Looms" and "These Stocks Are Poised To Triple In 2012"). Its latest news further validates our bullish view.
On Monday, Attunity reported 106% revenue growth for its March quarter. It was Attunity's sixth straight quarter of strong growth, showing investors that Big Data is taking off. Attunity's Real-Time Data Integration drove revenue of $6.1 million versus $3.0 million in the year-ago period. License revenue grew even faster, jumping 125% to $3.6 million in the quarter. These statements can be verified via the earnings conference call replay.
Attunity's September acquisition of RepliWeb has proven to be a quick and synergistic success. During the March quarter, RepliWeb contributed 50%+ organic license growth, only slightly overshadowed by the 60% organic growth delivered by its parent. This can be verified via the company's earnings call replay. Instructions can be found at the bottom of the earnings release.
The quarter was highlighted by seven large deals in the Financial Services vertical and many more in very competitive bake-offs. Many of these institutions chose Attunity for its expertise in enabling data availability and removing Big Data bottlenecks. Some of Attunity's latest capabilities allow customers to easily move data between on-premise and cloud-based applications.
These strengths have attracted big-name Big Data partnerships with the likes of Hortonworks (Big Data vendor, spun-off from Yahoo), Hewlett-Packard (HPQ), IBM, Microsoft (MSFT), Oracle (ORCL), and SAP (SAP). In fact Attunity's technology is in an integral piece of Micosoft's latest version of SQL Server.
Of equal importance, Attunity's CEO has a reputation for execution and unlocking value for public shareholders. He oversaw the growth of Precise Software from $1 million to over 20 million in quarterly revenue before accepting a $600 million buyout offer from Veritas (which merged into Symantec one year later).
Attunity is currently a third of the way to matching Precise's size at acquisition, so it still has plenty of growth ahead. Our discussion with management confirmed that the company is targeting 30% in annual organic growth, which could lead to another M&A exit. These facts can also be confirmed via the company's presentations to investors.
A simple modeling exercise uncovers Attunity's potential path. In the model below, you can see that the company has an attractive cost structure, highlighted by high gross margins. Company guidance indicates that the company will keep its R&D and G&A resources fixed, while Sales & Marketing expenses will grow at close to the same rate as revenue. Given this operating leverage, even 25% revenue growth will result in exceptional EPS growth.
If the company continues with its expansion, non-GAAP net income could approach $10 million in 2014. In our opinion, this would justify a valuation of nearly $9 per share, even if we apply a conservative PEG ratio of less than 1.
Of course, the company has to execute against this model for the stock to achieve its lofty potential. As such, there are risks, many of which are outlined in the company's annual report, filed with the SEC. Some of these risks include the following:
- The multi-billion dollar valuation afforded to Splunk shows that there is great potential for reward. However, it also means that there are many well capitalized competitors in the marketplace.
- Attunity need to maintain its relationships with IBM, Microsoft, and others. In 2011, two of its OEM partners accounted for 13.4 % and 10.7%. of revenue, respectively.
- The market is moving fast, so Attunity needs to remain ahead of the curve. As a result, its development efforts need to continue bearing fruit. Any missteps could be detrimental to the business.
In this regard, we are relying on management to replicate its past successes. In our earlier articles, we alluded to the company's potential, but with our modeling exercise we can now present quantification of why we believe shares of Attunity are poised to triple.
| ATTU (All numbers in U.S. $000) | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
| Software License | 4,645 | 8,140 | 15,000 | 20,000 | 26,000 | 33,300 |
| Maintenance and services | 5,430 | 7,029 | 12,000 | 13,800 | 16,320 | 19,683 |
| Total revenues | 10,075 | 15,169 | 27,000 | 33,800 | 42,320 | 52,983 |
| Growth | 51% | 78% | 25% | 25% | 25% | |
| Cost of revenues | 1,951 | 1,453 | 2,970 | 3,360 | 4,044 | 4,936 |
| Gross Profit | 8,124 | 13,716 | 24,030 | 30,440 | 38,276 | 48,047 |
| Research and development costs, net | 2,482 | 4,960 | 8,000 | 8,000 | 8,500 | 9,000 |
| Selling and marketing expenses | 3,831 | 5,851 | 10,000 | 11,830 | 13,754 | 16,425 |
| General and administrative expenses | 1,854 | 2,835 | 3,200 | 3,300 | 3,400 | 3,500 |
| Total operating expenses | 10,118 | 15,099 | 21,200 | 23,130 | 25,654 | 28,925 |
| Operating income (loss) | (43) | 70 | 2,830 | 7,310 | 12,622 | 19,123 |
| Non-GAAP Operating Income | 4,782 | 9,262 | 14,574 | 21,075 | ||
| Financial expenses, net | 1388 | 1284 | 1,250 | 1,000 | 500 | 0 |
| GAAP net income before taxes | (1431) | (1214) | 1,580 | 6,310 | 12,122 | 19,123 |
| Non-GAAP net income before taxes | 3,532 | 8,262 | 14,074 | 21,075 | ||
| Income taxes (benefit) | 74 | (399) | 632 | 2,524 | 4,849 | 7,649 |
| Net income/(loss) | (1505) | (815) | 948 | 3,786 | 7,273 | 11,474 |
| Non-GAAP Net Income | 2,900 | 5,738 | 9,225 | 13,426 | ||
| Forward P/E | 40 | 35 | 32 | 30 | 25 | |
| Valuation (Per Share) | $ 11.04 | $ 18.68 | $ 26.76 | $ 35.64 | $ 40.00 |
