Netezza (NYSE: NZ) is in the red-hot
market of data warehousing, which allows companies to manage their complex
digital infrastructures. At the same time, the company faces megarivals such
as Oracle (Nasdaq: ORCL),
Hewlett-Packard (Nasdaq: HPQ), and
NCR's (NYSE: NCR)
Teradata. But as seen with last week's fiscal second-quarter report,
Netezza knows how to deal with the pressure.
Revenue surged 60% to $28.4 million, and there was a 12% sequential
increase. In the quarter, Netezza landed eight new customers. This might
seem meager, but keep in mind that the company's customer total is
109, and the average contract size is $2.3 million. On the conference call,
Netezza indicated that these contracts often lead to "substantial potential" for
more product sales, and of course, there are the maintenance and service
fees.
Because of the healthy growth, Netezza is getting traction on the bottom
line. The net loss for Q2 was $1 million, or $0.19 per share, which was a
$900,000 improvement from the same period a year ago. Cash flow from operations
was about $3.9 million.
On the conference call, management also emphasized that it sees continued
strong demand. For example, the company projects full-year revenue of $114
million-$116 million.
Based on this, the company is trading at about 7.8 times
revenue. This is not out of line compared to other high-flying
infrastructure players such as Data Domain (Nasdaq: DDUP) and
Aruba Networks (Nasdaq: ARUN).
But the sales cycles are long, and competition is still a big factor. If
Netezza continues to pick up key wins, it will certainly get the attention of
its rivals. Also keep in mind that the company went public in late June, and
that transition can be tough. In other words, I still think there's lots of risk
with this one for now.
For further Foolishness:
Fool contributor Tom Taulli, author
of The Complete M&A Handbook, does not own shares mentioned in this
article. He is currently ranked 2,509 out of more than 60,000
players in CAPS. The Fool has a disclosure
policy.
