Yesterday, Open Text (TSX:OTC) reported its Q4, 2012 results. The company earned $125.1-million on revenue of $305.6-million, which was up 7% over the same period last year.
Open Text CEO Mark Barrenechea struck an optimistic note about the space the Waterloo-based software company plays in: “During the fiscal year, we rebuilt the leadership team, better organized the company and positioned ourselves to grow market share in the $13-billion enterprise information management (EIM) market, he said, adding: “We see increasing demand for our EIM solutions as customers are turning their attention to a single source of truth for all of their unstructured information.”
Versant Partners analyst Tom Liston says the tone of this year’s results was “significantly more positive”. In particular, he is encouraged by the company’s addressing the lack of balance between organic and acquired growth. A shift towards organic growth by building license revenue, says the Versant analyst, should lead to a significant expansion. In a research report to clients issued this morning, Liston raised his recommendation on Open Text to BUY, and increased his price target to $65 from his previous target of $60.
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Open Text, which got a new leader last December when former Rackable boss Mark Barrenechea took the reigns, grew out of a collaboration between the University of Waterloo and the New Oxford English Dictionary, the project was a partnership with the Oxford University Press to computerize the Oxford English Dictionary. This engineers on this project realized that it required developing search technologies that could be used to quickly index and retrieve information. The search technology they developed, which incorporated full-text indexing and string-search technology, was recognized as being useful for other electronic applications. In 1991, at about the same time the Internet was emerging, the results of this project were commercialized by a private spin-off called OpenText Corporation.
A year ago, Open Text joined Research in Motion in the Waterloo billion dollar club, reporting fiscal 2011 revenues of $1.03 billion.
Liston says he is skeptical of companies that expend company resources on acquisitions that don’t contribute to sustainable license revenue growth. He says acquisitions are far down the list of things that can be drivers of growth for Open Text. Much more important, he says, are things like the expansion of its sales force, a market expansion into areas such as Latin America, Emerging Europe and Asia Pacific and Japan, new products and new cloud services offerings, and the expansion of it partner channel, to further leverage the key relationships the company has built with partners like SAP, Oracle and Microsoft.
At press time, shares of Open Text on the TSX were up 10.1% to $54.01.