What to Expect From Tibco's Earnings

The only thing we know for certain about Tibco Software’s (NASDAQ: TIBX) upcoming results is that they are likely to cause a lot of volatility in its stock price. It is an intriguing proposition. On the one hand the industry has been reporting better results in this earnings season. On the other, Tibco reported a nasty quarter last time around, articulating that many of its problems were self generated. So will Tibco release sterling numbers aided by better industry spending, or is it set to inform the market that its internal problems are continuing?

Tibco’s Bad Quarter

In order to accelerate understanding of the major issues, I would recommend looking at the article linked here. In summary, Tibco reported a poor quarter last time around, with particular weakness in its US operations. Tibco’s management was forthright in claiming that this wasn’t about end market conditions and more about its US sales leadership failing to adequately execute. The panacea of changing the key personnel and a renewed focus on ‘blocking and tackling’ type measures topped off with a dollop of micro-management was swiftly proscribed.

Obviously if you are inclined to take the company’s guidance as gospel- to be fair, Tibco does have an enviable track record of beating internal guidance-then this would be a decent buying opportunity. In order to put the last quarter’s results and the guidance for Q1 ($243 million in revenues, $86 million in licenses at the mid-point and $0.17-$0.18 in EPS) in perspective, I have created this graph.

Furthermore, the big data industry has been reporting better news recently.

What the Industry is Saying

Tibco’s key competitors are IBM (NYSE: IBM), Oracle (NASDAQ: ORCL) and SAP. In addition, companies like Informatica, Teradata (NYSE: TDC), and Qlik Technologies (NASDAQ: QLIK) are also in the big data game, and are worth looking at in order to better gauge the industry.

Starting with IBM, there is a write up of its recent results linked here, and the key takeaway is that its middleware revenues actually accelerated from the previous quarter. They were up to 6% from 3% previously, and IBM forecast mid-single digit growth for 2013. IBM reported strong growth within areas like websphere and master data management, which implies that corporations are willing to spend on business process solutions and big data analytics.

Oracle last reported back in mid-December, but even then there were signs of a resumption of corporate spending. Its database and middleware solutions (the most relevant to Tibco) were up double digits in the quarter, and its management talked of a budget flush taking place in November and December without any negative impact on pricing. In summary, both of Tibco’s key commentators are reporting that the strength in their businesses is in the parts of those businesses that directly compete with Tibco.

It gets better. Qlik is focused on data analytics, specifically with data discovery and visualization. Its recent results were better than expected, and left analysts no option but to upgrade estimates. It reported more large deals amidst 41% growth in the Americas, and even Europe was up 19%. This is a clear sign that companies view data analytics as a critical part of their spending.

In fact, of the companies mentioned only Teradata reported weak results. This company is more of a data warehousing play and a partner of Tibco. Its chief competitors are Oracle and IBM. Teradata’s recent commentary wasn’t great. It cited macroeconomic headwinds causing customers in the Americas to tighten belts and reduce expenditures. Its number of large deals declined significantly in Q1. Oracle has been vocal about targeting some of Teradata’s markets, so perhaps this is a case of increased competition?

What Will the Results Bring?

On balance I think the industry backdrop is positive, and if things had been firing on all cylinders in the previous quarter for Tibco then the stock would surely be much higher. However, the truth is that it left a lot of uncertainty with its last set of results. It gave no full year guidance for either revenue or margins, and the Q1 guidance that it gave implied a noticeable decline in margins. Whether is a low ball estimate intended to be easily beaten or rather a realistic appraisal of prospects going forward is anyone’s guess.

Last time around Tibco’s senior management was pretty adamant that this was an internal issue, and if it has been sorted out by now then there is good cause to believe that the upcoming results could be better than expected. Tibco has some ground to recover with regards credibility. I suspect this is why it hasn’t participated as much in the recent rally as its peers. Nevertheless, if it beats estimates this time around I suspect it will soar.