Top 3 Big-Data Stocks for 2012
NEW YORK (TheStreet) -- We all know that Silicon Valley loves buzzwords, but investors should pay close attention to the "big data" market, which could spell big money for companies such as IBM
Big data refers to the management of vast quantities of unstructured data, or information that is outside the realm of traditional databases. Examples include email messages, PowerPoint presentations, audio, video and social media information.
There's no shortage of publicly trade companies that are riding the big data wave. The biggest names are IBM, EMC and Teradata, which have key weapons in their arsenals. Other companies playing in this rapidly-growing space include Oracle
"Increasingly, the transformation of business itself is being driven by the ability to harness big data," noted David Goulden, the EMC CFO, during the company's recent fourth-quarter conference call. Businesses that can quickly use the vast troves of data both inside and outside their companies, he added, can gain competitive advantage.
Big data is clearly a growth area. JMP Securities estimates valued the market at $9.1 billion market in 2011, a figure that will reach $86.4 billion by 2021.
Read on for more details on tech's top 3 big-data stocks:
Market Cap: $236.42 billion
Hardware and software giant IBM, which reports its fiscal first-quarter results on Tuesday, has an extensive strategy for tackling big data. At the heart of Big Blue's efforts are data warehouse appliances from the company's $1.7 billion acquisition of Netezza in 2010.
"IBM sells standalone Netezza Big Data appliances but is also incorporating them in a broader strategy with its other database, business intelligence and analytics and data management solutions," explained Charles King, principal analyst at research firm Pund-IT.
Speaking during IBM's fourth-quarter conference call in January, CFO Mark Loughridge noted that the firm's Netezza revenue climbed 70% year-over-year. "We could have done even better on Netezza but we sold out the box," he explained. "Netezza turned out to be a very, very strong acquisition for us."
Additionally, almost a third of Netezza transactions during the quarter were with new customers. Big Blue has also expanded the Netezza customer base by over 40% since completing the acquisition less than two years ago.
Netezza, however, is just one part of IBM's big data story, which also encompasses InfoSphere software for exploring, analyzing and cleansing data . The company also touts its Smart Analytics System, a combination of server and storage hardware with text analytics and data mining software, for companies wrestling with unstructured data.
Big data feeds into IBM's broader push into analytics, epitomized by its purchases of business intelligence specialist Cognos and predictive analytics firm SPSS. The Armonk, N.Y.-based tech giant, which has acquired 28 analytics companies since 2005, expects to generate $16 billion in analytics revenue by 2015.
Underlining this effort, IBM launched its PureSystems offerings last week; packages of servers, storage, networking and tightly-integrated analytics software. The company also purchased privately-held sales analytics specialist Varicent.
IBM, which recently a new all-time high, is expected to report yet another decent quarter on Tuesday, boosted by big data and analytics.
TheStreet ratings rates IBM's stock 'buy' thanks to the company's sales growth, return on equity and future upside potential.
Market Cap: $59.81 billion
Storage giant EMC, which reports its first-quarter results on Thursday, is another top big data stock.
"They are front and center in terms of the trend of big data," Daniel Ives, senior analyst at FBR Capital Markets, said. "They are a major beneficiary, and, I think, as well positioned as anyone, especially on the storage side, which continues to see major secular tailwinds."
Other analysts have also highlighted the importance of EMC's Greenplum division in delivering big data dollars. "Big Data means different things to different people - some think storage and some think analytics," explained Jayson Noland, an analyst at Robert W. Baird, in an email. "
The Hopkinton, Mass.-based firm acquired data warehouse and business intelligence specialist Greenplum in 2010, and has used the company as the launch pad for its big data efforts. Late last year, for example, EMC launched the Greenplum Unified Analytics Platform (UAP) as a way for businesses to quickly process structured and unstructured data, and share the results across different parts of the organization.
Speaking during EMC's fourth-quarter conference call, CFO David Goulden lauded Greenplum's performance, clinching new customers in industries such as health care, retail, technology and communications.
In addition to Greenplum, EMC also offers its Isilon hardware for big data storage, fuelling the firm's recent record results. Isilon revenue more than doubled year-over-year in the fourth quarter, and also in 2011. EMC plans to refresh its Isilon product line this year, which should strengthen its big data efforts.
ISI Group analyst Brian Marshall rates EMC as one of his "top three ideas" for investors in 2012, citing the company's ability to serve the cloud-computing boom and its successful M&A strategy in areas such as big data. Marshall also sees the growing adoption of technologies such as the Unified Analytics Platform as a near-term catalyst for the company's stock.
EMC also has a decent price-to-earnings ratio, particularly when compared to rivals such as Hewlett-Packard
TheStreet Ratings rates EMC's stock a 'buy' on the strength of its strong earnings and revenue growth, expanding profit margins, good cash flow from operations and solid stock performance.
Market Cap: $11.51 billion
Teradata, which has recently been hitting 52-week highs, is perfectly positioned for the big data boom.
"They have been in the big data business for a long, long time," Greg McDowell, an analyst at JMP Securities, said. "They are the leading data warehouse vendor."
"Teradata's data warehousing solutions have long been highly regarded and the company should be considered a major big data competitor," agreed Pund-IT's King. The San Diego-based company, he noted, added text analytics to its data warehousing offerings in 2010, bolstering its big data story.
Last year Teradata also bought software maker Aster Data, which specializes in analyzing unstructured data. "The primary reason for the acquisition wasn't to drive short-term revenue and operating income," explained Teradata CEO Michael Koehler, during the company's recent fourth-quarter conference call. The deal, he added, was more about moving big data out of its current e-commerce niche into the mainstream market.
Teradata is certainly on an upward trajectory, as evidenced by the company's recent record fourth quarter and full-year results. The Atlanta-based firm has also grown its customer base by more than 50% over the past four years, increased its revenue by almost $600 million and nearly doubled its market cap.
Set against this backdrop, Teradata shares have climbed more than 40% this year. Technical analysis of the stock, however, suggests that it's still somewhat undervalued and has more room to grow.
"Our overall sense is that the demand environment remains healthy for Teradata's solutions and that the company remains comfortable with its first-quarter guidance of 'good revenue growth' and full year expectations of 10% to 12% revenue growth (11% to 13% at constant currency)," explained JMP's McDowell, in a recent note. "We continue to like Teradata because it is the leading data warehousing vendor and we believe it stands to benefit from the big data trend more than any other technology vendor."
JMP rates Teradata 'market outperform' and has a $72 price target on the stock.
TheStreet Ratings rates Teradata 'buy', citing the firm's revenue growth, compelling growth in net income, and its solid financial position.
--Written by James Rogers in New York.
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