Friday, 17 July 2009

Autonomy’s growth fails to impress the markets

(By Philip Carnelley, Fri Jul 17 2009, 9:20) Autonomy received a surprisingly cool reception from investors yesterday, considering it had just revealed quarterly revenues up 55% (to $195m) with EBIT up 70%, to $74m (for details, see here). Organic growth was “just” 18%, new licence growth 16%; Autonomy shares fell 11% on the news. There were two worries: growth and cash conversion. The cash issue centred on deferred revenues, and is nicely explained in the FT today: see here. The growth concern was triggered by projections that revenues will fall sequentially in the third quarter. Third quarter profits would likely fall too due to projected marketing costs. Autonomy CEO Mike Lynch admitted that its OEM channel has seen growth slowing due to “macro weaknesses”. While many CEOs would give their eye teeth for 18% organic growth, by Autonomy’s standards – and some other content management players – that’s not so special.

But from an industry point of view, Autonomy is looking rather good. It now has a robust content management platform, from the Interwoven purchase, linked to its well-respected intelligent search (aka “meaning-based search”). With Interwoven, Autonomy bought a very strong position in the legal world which it can cross-sell into. And its enterprise search plays well in an era when new regulatory frameworks are being unveiled all the time, especially in finance. One of Autonomy’s strongest suits is regulatory compliance applications.

Autonomy also has a story on social media analytics, offering marketing departments some understanding of “customer sentiment” expressed through Twitter and Facebook. This, as we commented yesterday (see Alterian ticks social media analytics box with Techrigy), is marketing’s hottest button right now. It’s all part of Autonomy’s emerging play on “meaning-based marketing” which allows it to compete with companies like Alterian. Lynch commented that the company’s push into this area had yielded a number of small implementations and pilots, though large-scale deployments will need to wait till customer budgets recover.

In our view Autonomy’s prospects look good. Whether that’s quite good, good or very good depends on timescales. For those who are looking further out than the next 6 months, we’d say Autonomy’s future is as good as it gets in this economic climate.

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