(By Balaseshan) Deutsche Bank (DB) analyst Tom Ernst Jr. downgraded his rating on shares of Informatica Corp. (NASDAQ:INFA) to "Hold" from "Buy" due to execution, growing competition, and lack of meaningful catalyst. The analyst lowered his price target to $35 from $53.
Informatica pre-announced weak 2Q-2012 results with revenues expected to be $188 million to $190 million, up 1% year-over-year constant currency (versus the analyst's/street estimate of up 15% year-over-year constant currency).
Licenses are expected to be $70 million to $72 million (down 16% year-over-year constant currency, versus Ernst's estimate of up 11% year-over-year constant currency, and up 12% in 1Q-2012). The miss was attributed to weak execution (new Europe head joined last April), and macro weakness across the board (across verticals/geographies) in June.
The analyst expects that solid execution will likely take time to materialize, competition posing threat to category leadership, and sees upside from trends like Big Data/Hadoop adoption as limited.
Ernst said weak execution and poor macro (Europe was weak, and customers across the board reported longer times for budget approvals) saw constant currency organic license growth declining 16% year-over-year, from up 12% growth just last quarter.
Informatica reported hiring more than 120 employees in 2Q (further hiring to temper down), with their growth posture down from 1Q-2012.
The brokerage lowered its 2012 EPS estimate by $0.19 to $0.97 and its 2013 estimate by $0.18 to $1.28. It also cut 2012 revenue forecast by $50 million and 2013 estimate by $82 million.
The analyst's revised 2012 estimates embed 4% license growth year-over-year constant currency, down from 17% last year, which embed execution challenges in 2012.
Ernst said execution likely lags with a new unit head since in Europe (since last April), in financial services since last November), and slower average selling price (ASP) growth (inconsistent ASP growth since the last 3 quarters, after posting consistent double digit growth till 2Q-2011.
The analyst said potential share losses to large competition in the form of IBM (which integrated all recent acquisitions under single platform), and open-source at the low-end (largest competition has been growing 100% year-over-year for last couple of years). Limited tailwinds from adoption of Big Data/Hadoop in enterprises.
INFA is trading 27.28% lower at $31.54 on Friday. The stock has been trading between $28.12 and $62.42 for the past 52 weeks. The stock touched a new 52-week low.