An Introduction to the "Big Data" Theme

I like one-way bets.  I’m fond of looking for growth plays in areas where, almost no matter what, the wind is blowing in my favor.  The “Big Data” theme represents one of the best examples of this in our time.

For the uninitiated, Big Data has been a theme in the technology industry since at least 2009 but mass awareness is only now coming to Wall Street and the investor class.  Essentially we’re talking about the gathering, formatting, analyzing and utilization of a massive amount of digital information as a form of business intelligence.

We live in amazing times.  Never before have companies had so much data to work with and learn from.  Research firm IDC put the year   2008’s global digital output at 180 exabytes — 1 exabyte is a little over 1 billion gigabytes — expects that to jump 10 times this year and reach 35,000 exabytes by 2020 (source: Reuters).  Every click on a website, every phone call, every tweet, every transaction – these are all bits of data, information to be harvested and examined.

This explosion in data is being driven by several factors.  Mike Driscoll of Metamarkets lays these out for us:

• Storage costs dropping
• CPU costs dropping
• Bandwidth cost dropping
• Network Access is exploding

None of these trends will be reversing anytime soon, hence my one-way bet thesis.

The trouble is, most of this data is incompatible and unintelligible.  The information from RFID tags at the point of purchase is in a different format than the data coming from Facebook users, for example.  But there are software companies who can put this data together for companies and glean insights from it that make the company more efficient and competitive.

How big of an opportunity are we talking about?  Everyone is scaling up, you name the industry.  Financial services has been a leading adopter of Big Data and Data Integration services but we’re also seeing mass adoption in healthcare, logistics, manufacturing, military, data services bureaus, and casinos.  There’s gold to be had in the data and no one is leaving nuggets of gold lying around these days.  The healthcare industry alone could save $300 billion a year by deploying real-time data integration according to McKinsey.

That’s Big Data.

Now it’s one thing to identify a trend, but it’s another thing entirely to express the trade the right way.  This is what I’m working on now so as to be prepared for the back half of the year.

There are a handful of pure-plays on this theme, two of them I’ll mention here are Tibco (TIBX) and Informatica (INFA).  I do not own either of them at this moment and as this site does not make recommendations, I urge you to do your own research.

Informatica is a bit more well-known having made a new high at 59 at the end of May so let’s just take a quick glance at it…

INFA has 4300 customers, 10% of which are growing into the Big Data realm of 100 terabytes of data or more.  It’s a $6 billion market cap company with no debt and $550 million in cash.  Revenues have quadrupled over the last 8 years to $650 million.  The stock is far from cheap at 40 times this year’s earnings estimates, but the summer has a funny way of beating tech stocks up and allowing for better prices – this is why I’m hanging back and just stalking for now.

There are also opportunities away from software on the storage side, I’m involved with a few names in that group as well.

Although engineers and technology execs have been aware of the Big Data opportunity for quite some time, investors are only now waking up to the excitement and potential of this theme.  Those looking for secular growth may want to set aside some time this summer to learn more about what’s happening here.