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Autonomy’s share price weakness last year was the delay in making a mooted acquisition
A key reason for Autonomy’s (LON:AU) share price weakness last year, with the stock falling from a high of £19.75 in mid 2010 to a low of £12.71 in November, was the delay in making a mooted acquisition. The recent takeover of certain assets of Iron Mountain has served to address this somewhat though and therefore regain investor trust.
Iron Mountain moved into the digital arena in 2004 with the acquisition of Connected Corporation. Other acquisitions followed in this area making the parts of the business an attractive target for Autonomy.
As such the group is buying Iron Mountain’s digital division which includes archiving, eDiscovery and online backup. This will allow the group to give Iron Mountain’s customers access to Autonomy’s products and in particular the key IDOL product.
The deal also expands the group’s cloud platform to 25 Petabytes of customer data. The cloud is simply the modern jargon for data and applications to be stored on remote servers and then accessed through networks.
The acquisition of the data storage and protection business from Iron Mountain gives Autonomy a direct sell into companies using its services. At a flick of a switch Autonomy can apply its analytical software to those companies using the services of the business it has acquired.
This contrasts with installing software at a clients’ location and then leaving the client to deal with any issues that arise. Thus for both parties cloud based systems are more cost effective and convenient.
Another area where business is changing its approach is through subscription revenue rather than one-off software sales. This means a more predictable and reliable income stream but does serve to depress revenue in the near-term.
Looking at the first quarter performance for the group and revenues rose by 13% to a record US$220m while diluted adjusted EPS was up by the same amount at US$0.29. The move to subscription revenue, though, downplays the growth in the business.
The group considers the organic growth of IDOL sales to be the most important performance metric and guide to the momentum of the business. In Q1 this increased from US$120.6m to US$144.3m which means organic growth in the core business of over 19%.
This was as the average selling price for the quarter was up to US$806,000 from US$634,000 last year. Gross margins increased to 88% from 86% last year while R&D spend increased 17%. Encouragingly the group saw 27 seven figure deals in Q1 which was up from 19 last year.
Of particular note is the increased bullishness from Autonomy on economic conditions which follows the company warning of “volatility” of customer demand last year. As such the group states that: “we continue to see a gentle sustained recovery and believe current market estimates will turn out to be conservative.”
This article was produced by Senior Research Analyst, Andrew Latto
