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How to Invest in Big Data
11/29/2012 11:14:00 AM
By: Cabot Heritage Corporation
By Chloe Lutts
What is Big Data?
Increasing Sales and Winning Elections
How to Invest in Big Data
"One of the most popular buzz words in corporate America over the past two years." That's how Small Cap Investor PRO Editor Tyler Laundon described the concept of "Big Data" in the latest Investment Digest.
But what exactly is "Big Data?"
Simply, Big Data is a concept and a buzzword coined to describe the increasingly enormous data sets being analyzed by businesses, governments and organizations today.
Today's "Big Data" sets are so large that they've been given a new name to set them apart from the data that's been available in the past. From a technical standpoint, the defining characteristic of Big Data is that it requires new and purpose-built tools to capture, store, search, share, analyze and visualize that data. For example, commonly-used database management tools like Microsoft Excel can be used to easily store and use hundreds and even thousands of data points, but are too slow to store and manage Big Data sets containing multiple terabytes or petabytes of information.
An example from the sciences helps show just how much bigger Big Data is. The Sloan Digital Sky Survey is an astronomical survey begun by a New Mexico observatory in 2000. Collecting about 200 GB of data on the cosmos per night, the Sloan survey collected more data in its first few weeks of operation than had previously been collected in the entire history of astronomy.
Businesses are collecting and using big data too. Wal-Mart ( WMT ) saves data on all of its customer transactions-over one million per hour-in databases now estimated to contain more than 2.5 petabytes of data. That's the equivalent of 167 times all the information contained in the entire Library of Congress. (That number comes from The Economist , which explains how it compares books to bytes in this article ).
What use is that much data? It depends on how good your tools are. No one person can look at 2.5 petabytes of data and discern any sort of pattern from it. So software for organizing and analyzing Big Data has become a big business. Organizations with the right tools can use them to make big money... or win big elections.
Right after the presidential election, the Obama campaign shared some of its data strategy with Time Magazine. In this article , the campaign explains how having the right tools to analyze the data was key. The campaign took the various databases it had been using for the 2008 election-with data from field workers, fundraisers, consumer databases and social-media-and combined them into one unified dataset. Once the data was all in one place, the campaign could connect different types of information-linking registered voters to their Facebook pages, for instance-and run simulations of potential outcomes.
One senior campaign advisor told Time, "We could [predict] people who were going to give online. We could model people who were going to give through mail. We could model volunteers. ... In the end, modeling became something way bigger for us in '12 than in '08 because it made our time more efficient."
So how can you invest in all this Big Data that's helping Obama win elections and Wal-Mart make money?
There are actually a lot of options. One is to buy one of the companies that have Big Data, like Wal-Mart or, even better, a specialized data collector like Equifax ( EFX ) or Acxiom Corp ( ACXM ) . Both collect consumer and commercial data, on- and off-line, and sell or license it to users like the Obama campaign and retailers. Equifax also offers its own products, like credit scores and fraud detection.
You could also buy one of the companies storing all these massive data sets, like EMC ( EMC ) or Teradata ( TDC ) . Both have thousands of servers storing client data, and also offer customers data analysis solutions.
But as I said earlier, the single most important determinant of Big Data's usefulness is the tools you have to use it. Generally, that means software.
Luckily for you, the latest Investment Digest featured not one, but two, companies that make software for analyzing and using Big Data. One is still too small to tell you about here-if you'd like to know the company's name and story, consider becoming a subscriber to the Investment Digest . But the other is a little further along in its growth path, and I can share part of the recommendation, from Ian Wyatt's Top Stock Insights , now:
"One of the biggest trends over the next few years will be the collecting and utilizing of Big Data sets. TIBCO Software, Inc. (TIBX) does this better than anyone else in the business. ... Major TIBCO clients include Yahoo, NASDAQ and Oracle-even the statistics wonks at Major League Baseball use TIBCO to help organize their database. With the timely intelligence TIBCO brings, companies can maximize revenue, drive innovation, and increase efficiency, thereby bringing costs down. ...
"What separates TIBCO from the rest of the herd is time. Businesses receive real-time analysis from real-time data using TIBCO software, whereas the competition uses data that may be months old. This is TIBCO's biggest advantage.
"The company is also better equipped to offer clients solutions based on data consumers provide on social networks. TIBCO generates revenue by signing licenses with customers to design middleware. Once a customer purchases TIBCO software, the company charges service and maintenance fees. Though 60% of total revenue comes from service, the licensing business segment has a 91% margin on new contracts.
"The company reported 134 new deals of over $100,000 during the third quarter-up from 126 last year. What's more, the average size of those deals rose-indicating strong customer demand-to $676,000 compared to $658,000 in the same quarter last year. The positive results in the third quarter didn't stop with the new signings. The company also managed to increase their sales by 11% to $255 million. Management reported EPS of $0.27, up 17.3% from $0.23 a year ago (taking into account a $0.04 adjustment for currency). ...
"Analysts expect TIBCO to generate $1.17 EPS in 2012 and $1.37 next year with sales expanding by 13.5% per year. Those estimates equate to a P/E ratio of 21 for this year and 18 in 2013. Though those ratios appear high, they aren't too out of whack considering that TIBCO is growing its earnings at a 17% clip. Moreover, the shares have typically traded with a P/E ratio above 40 over the past two years. ... We recommend buying the shares below $29 and have a 12-month target of $32."-Ian Wyatt, Top Stock Insights , 11/20/12
A former dot-com darling, TIBX laid low for almost a decade after the tech bust of 2000. Then in 2009 and 2010, the stock started a second life, gracefully ascending 300% in two years. But it then traded in a rocky range for all of 2011, and has so far repeated the action this year, albeit at slightly higher price levels. In a downtrend since September, TIBX is now available near its lowest prices of this year. I can't say if 2013 will be the year this stock takes off again, but the industry trends are certainly favorable and, based on the available data my simple human brain can process, I like its odds.
Wishing you success in your investing and beyond,
Editor of Dick Davis Dividend Digest