The technology sector never ceases to surprise. If, two weeks ago, it was Facebook (FB), which astonished everyone with its acquisition of WhatsApp for an astronomical sum, last week it was the IPO of Varonis (VRNS). Every child understands what WhatsApp does, and it's possible to argue about the acquisition price. But not many people understand what software company Varonis does, and why it receives a $1.3 billion valuation on sales of $73 million and a loss of $7.5 million, both last year's figures.
In a very general way, the solution to the riddle of Varonis's valuation lies in the speech given by IBM CEO Ginni Rometty at the World Mobile Congress in Barcelona two weeks ago. Rometty declared that "data will be the natural resource of the twenty-first century," referring to the endless amounts of digital information that we produce. In her view, when people come to look back at the twenty-first century, they will say that data powered a great revolution, just as coal powered the industrial revolution in the nineteenth century.
According to Rometty, one in three IBM customers today is seeking ways of profiting from the intelligent use of what is known as Big Data, and enterprises that manage this successfully will be more competitive, while those that neglect it will not survive. She said IBM had invested $24 billion in data, and that data analysis solutions generated annual revenue of $16 billion.
Software solutions for intelligent enterprise data management, and not just security, are what Varonis sells. Since the assumption is that this area will grow rapidly for many years to come, investors fell on Varonis's shares at 17 times 2013 sales.
Varonis is not the first data company to have fired investors' enthusiasm. It was preceded by Splunk (SPLK), which has a market cap that is 32 times 2013 sales, and Tableau Software (DATA), whose 2013 sales multiple is 24. All three, incidentally, lose money.
One advantage of an IPO is that there is no stock market history, but sometimes veteran listed companies, with problematic histories, can be much more attractive for investment.
In data management, instead of paying crazy sales multiples for loss making companies, I suggest taking another look at Attunity Inc. (Bulletin Board: ATTUF), and not being alarmed at the fact that, five years ago, it was on the verge of insolvency, with its share price at a low of $0.50 (adjusted for a split), and that last week it touched a peak of $12.
At a large investor conference being held by Roth Capital in California today, Attunity CEO Shimon Alon has a good opportunity to explain his company's share of the Big Data deals that are supposed to power strong growth in the years ahead. Thanks to software tools it developed years ago, two successful acquisitions, and more than $16 million in the bank, Attunity sees sales growing to $34-37 million this year, compared with $25 million last year, and operating profitability (non-GAAP) of 9-13%.
Attunity's data niche is solutions for efficient and fast transmission of files of all kinds from enterprise computers to data storage centers, analysis servers, or the private and public cloud.
According to research firm IDC, the amount of data that is generated will grow 50 times larger in the decade from 2010 to 2020. More importantly, 90% of the data is unstructured, that is, data that cannot be stored in classic databases. Hence the great need for special tools, such as those of Varonis and others for analysis and management, and those of Attunity for replication.
When people talk about strong growth in the coming decade because of the "Internet of things" (IoT), they mean, among other things, the data that are gathered from billions of sensors on billions of "things," from an engine on an aircraft in flight, to a smartphone in the hand, to a drilling rig at sea.
Attunity's replication solutions are capable of transferring the data collected in real time to an enterprise's storage centers and analysis servers.
For example, one of Attunity's current projects is the real time transfer of data gathered from the many sensors on drilling platforms at sea. Attunity transfers the data via satellite from local servers to Norwegian company Kongsberg, which analyses the data for gas and oil exploration companies.
After BP's huge pollution accident in the Gulf of Mexico, drilling companies do not stint on systems that warn of any breakdown.
The writer serves as a consultant and investor in securities, and advises the Pia Select Nasdaq fund. This column should not be seen as advice or a recommendation to buy or sell securities, including securities mentioned in the column. Anyone who acts in reliance on the column is exclusively responsible for any damage or loss they may incur.
Published by Globes [online], Israel business news - www.globes-online.com - on March 10, 2014
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