Informatica, Inc (INFA) is a data management company. Its artificial intelligence (AI) system, nicknamed CLAIRE, assists customers with connecting and consolidating data across multiple cloud systems. Informative is newly public, having closed its IPO in October 2021.
I am neutral on INFA stock. (See Analysts' Top Stocks on TipRanks)
Introducing Informatica
Informatica has just recently gone public. However, this is not the first time that the company has been publicly traded. It first debuted on the Nasdaq in 1999. This was just before the tech bubble crashed. The company remained public until 2015, when it was taken private.
This same year, the company launched its first iteration of the data management platform. The latest AI-powered platform, CLAIRE, was introduced in 2017. In 2018, the efforts were validated as the company was named a leader in five Gartner Magic Quadrants, including Metadata Management Solutions.
Growth Lags Due to Model Change
Informatica has begun to transition to an annual subscription model in recent years. Because of this change, subscription revenues are growing rapidly; however, total revenues are not. At this time, Informatica is not a high-growth company, which is concerning.
Q2 2021 growth of total revenues was only 16% over the same period in the prior year. Annual subscription revenue growth was a much more robust 34%. This is a metric that investors should watch moving forward.
Another issue for the company is the long-term debt balance. It stands at $2.76B as of its last report. This is a significant balance given the prior twelve months' revenue was only $1.38B.
On the positive side, Informatica has posted operating profits over the last twelve months of $86M. The company also has a tremendous gross margin above 80%. This indicates an ability to scale to even larger profits in the future.
Subscription Model Indicates Future Success
The company's subscription revenue for the quarter came in at $686M. The company estimates its total addressable market at $44 billion, so plenty of runway is available.
Data is the lifeblood of modern companies. The ability to utilize the data to manage operations effectively and efficiently separates those who are wildly successful from those who aren't.
Storing data in warehoused silos is ineffective and slow. With its AI platform, Informatica is on the cutting edge of this intelligent data management need. Because of this, the company is boasting a 116% net retention rate. This means that it sells more products to current customers in excess of any customer churn. Currently, the company serves over 5,000 customers and 84 of the Fortune 100.
Wall Street's Take
Informatica has limited coverage on Wall Street. The company has just gone public and is now in its quiet period. There is no analyst activity at this time. Informatica will emerge from the quiet period on December 6, 2021.
The stock is also in a lockup period until April 25, 2022, which forbids certain insiders from selling shares. Upon its expiration, insiders may sell, and the supply of shares can increase significantly. This can cause the stock price to decrease, and investors should exercise caution during this time.
INFA opened trading on the Nasdaq at $29 per share. Unlike many IPOs, it has not experienced significant wild swings. The current price is about 11% over the IPO price. Investors are likely taking a wait-and-see approach due to the tepid growth mentioned previously.
TipRanks' Smart Score
TipRanks’ Smart Score assigns Informatica a Neutral 4 out of 10, citing very positive TipRanks investor sentiment and neutral sentiment. Again, there isn't much coverage on this company, which is why most of the sections in the Smart Score show "N/A".
Conclusion on Informatica
Informatica has thousands of customers and serves most of the Fortune 100. The company serves a legitimate need for these companies. It is also a leader in five separate categories of Gartner Quadrants. This is highly encouraging.
Growth and valuation are the biggest questions facing the stock. With the market capitalization currently above $9 billion, the price-to-sales ratio is around 6.5. Because of this, the stock appears to be fairly valued, and it would be a great addition to an investor's watch list.
Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.
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