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Informatica forecasts subscriptions will pick up

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The 4Q earnings call

Informatica’s management noted on the 4Q earnings call that they expect the subscription component of its revenues to grow from 15% of software revenues to over 35% by 2018. They added, “This increase will be fueled by the expected compounded annual growth rate (CAGR) of greater than 40% in subscription revenue over the next four years.” It expects CAGR for its software revenue will grow to 15% by 2018 as compared to a 7% CAGR over the last three years. Total revenues are expected to grow at a CAGR of of 13% through 2018.

Non-GAAP (generally accepted accounting principles) operating margins were forecast to grow 24% to 25% by 2018, while earnings per share were forecast to increase at a CAGR higher than the rate of increase in total revenue.

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Informatica forecasts a weak non-GAAP operating margin guidance of between 21% and 22% for fiscal 2015. But management believes the subscription business will improve by 2016 and “achieve enough scale as $100 million plus revenue business.” They added that this will help grow operating margins with “leverage from Research and development (R&D), General & Administrative (G&A) and services cost of goods sold.”

Board approves additional stock repurchase

Informatica’s 4Q results also included the announcement of a $500 million stock repurchase program. The company said its board approved an additional $337 million to augment its existing share repurchase authorization. Informatica disclosed plans to buy back an aggregate $500 million of common stock through a $300 million accelerated share repurchase program via open market purchases or privately negotiated transactions.

Data and analytics mergers and acquisitions on the rise

Despite the buyback, Informatica’s management says the company has enough capital to fund acquisitions that would complement its growth strategy. A 3Q14 software sector review by Harris Williams & Co. notes, “Strategic buyers are prioritizing data-oriented acquisition targets as customers remain hungry for ways to capitalize on ever increasing data.” It adds that Oracle (ORCL) was the “most active Data and Analytics software buyers, completing three transactions in 2014.”

A recent CB Insights’ Business Social Graph analysis notes that Oracle, IBM (IBM), and SAP (SAP) are looking to acquire behavioral data companies. Informatica, IBM, Oracle, and SAP make up 3.75%, 2.41%, 3.56%, and 3.13%, respectively, of the First Trust ISE Cloud Computing Index Fund (SKYY).

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