Netezza Corp.: Smarter filing cabinets

Andrea Orr | Jun 23, 2008 6:30am EDT | 1 Comment

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Most of us have at one time experienced an attack of clutter when we discover that we desperately need a filing cabinet to keep all important documents organized. Now, imagine your documents piling up at such a rate that the one filing cabinet has become a warehouse full of filing cabinets, all containing records and receipts that aren’t immediately needed, but must remain accessible.

Although the situation rarely gets that bad for individuals, for the average business that stores most of its records electronically, it often seems like there are no limits, which is where Netezza Corporation (NYSE:NZ) comes in.

The seven-year-old Framingham, Mass.-based company is widely identified as one of the most promising of a group of data warehousing startups that offer technology to help companies make sense of the volumes of data they have in storage.

And sense, indeed, must be made. Many businesses are almost drowning in virtual data with the addition of new regulations mandating that many companies in the health-care and financial services industries keep more documents for longer lengths of time.

This same trend has also given rise to the data warehousing industry, which offers ways not only to store massive amounts of data, but to do so in an orderly fashion so that it can be called up as needed.

Netezza’s performance server allows companies to conduct detailed queries and sophisticated analyses of the data they have in storage, and its business is growing almost as swiftly as the amount of business-critical data in storage, estimated by International Data Corp. to be expanding at a rate of 50% per year.

Netezza’s shares have had a choppy ride since the company went public last July, swinging between $7.02 and $17.57, and closing at $12.43 on Friday. But all signs suggest that the long-term trend is up for this company, which has developed a superior data warehouse appliance that helps companies get a better view of what’s in all their virtual filing cabinets. Netezza is enjoying strong growth, and analysts further believe it’s taking market share away from larger rivals such as Teradata Corp. (NYSE:TDC).

Revenue for the first quarter of fiscal 2009 increased 56% to $39.6 million from $25.3 million for the same period one year ago. Non-GAAP net income for the first quarter of fiscal 2009 was $3.8 million from a loss of $1 million for the same period one year ago. Management is optimistic about the rest of the year. On May 29, they raised revenue guidance to the $168-million to the $172-million level for 2009 from $165 million and maintained the guidance of targeting non-GAAP operating income of 7% to 9% of revenue and GAAP operating income of 1% to 2% of revenue.

Analysts are confident Netezza will be fully profitable this year as sales continue to show robust growth. The consensus among six analysts who follow the company is for net income to increase to $0.16 per share in fiscal 2009 and to $0.26 per share in 2010, from a $0.03-per-share loss last year. On average, those six analysts see revenues rising to $172.4 million in 2009 and $220.3 million in 2010, from $126.7 million in fiscal 2008.

Those forecasts reflect the company’s move in May to increase already-aggressive growth projections for this year following a business review that turned up no weak links or sensitivity to the soft economy that has hurt most businesses.

Needham & Co analyst Glenn Hanus explains that unlike some more mature rivals such as Oracle Corp. (Nasdaq:ORCL), which also offers business intelligence software, Netezza built its technology specifically with today’s ultra large volumes of enterprise data in mind, and works much better overall.

“I’m very bullish on this company,” Hanus said. “Bottom line, it’s a disruptive technology in terms of performance and cost, a better mousetrap.”

In other words, while Netezza is doing many of the things that companies do to build market share (forming alliances and acquiring smaller businesses to fill out its product line), it is also riding a wave of the sheer momentum that comes from having a transformative product that serves a function businesses desperately need to address. Many of its customers, in fact, are adopting Netezza to replace a patchwork of hardware and software from different vendors, cobbled together to try to manage ever-growing volumes of stored data. Think of a shiny new filing cabinet replacing a pile of dog-eared folders and envelopes.

Netezza, of course, will probably not remain the market leader forever; few technologies ever do. And the business of data storage may one day evolve to a point that data warehousing is less essential. But any such changes are still a very long way off, judging by the state of storage today, and Netezza has a long way to grow before then.

About the Author
Contributing author Andrea Orr has worked as a financial and business journalist for more than 15 years in New York, Los Angeles and northern California. Read More