Tuesday, 4 August 2009

Fidessa tempers expectations

(By Philip Carnelley, 4 Aug 2009, 18:25) In Fidessa’s results briefing, CEO Chris Aspinwall cautioned us not to get carried away by its interim results (see Fidessa continues to deliver growth). He said that while stability is starting to return to the markets, the company is seeing a “two-speed economy”, with larger banks and focused boutiques showing strength, but many smaller firms subject to pressure. In that context, this was a good performance. Software and market data revenues were up 43% (including currency gains), but consulting (one-fifth of revenue) also rose 14% year-on-year. Very few software companies have seen any growth in their consulting units of late. Its LatentZero offering for the buy-side, acquired a couple of years back, was the poor relation, with relatively modest growth (17%). It now accounts for 10% of revenues. The company says a new SaaS version will be released in the next 12 months – it will be interesting to see if that increases its uptake.

One thing that assists Fidessa in both stability and growth is its business model: it “rents” its software rather than the more common new licence+support fee arrangement. Thus all of its software revenues, as well as market data and connectivity service fees – are “recurring” – that’s 81% of revenue. Fidessa has offered hosting of its software since 2000 – now more commonly referred to as SaaS, of course – and today 51% of its revenues arise from hosted solutions. The company says it’s seeing increasing interest in this mode of delivery which makes it something of a SaaS trailblazer. That said, its margins are low for a software company – around 11% operating margin – which is in part due to the different model; though it is also due to the market data/connectivity aspects of the business, which is something of a commodity sale, and accounts for some 24% of revenues.

For the longer term the company is quite optimistic. Expected new regulation of financial markets should drive uptake of automated compliance solutions. Also, Aspinwall highlighted prospects in Asia Pacific (up 46% so far this year), citing new interest from domestic companies in both ChinaJapan. and

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