Growth in Big Data may be exponential in sheer size of the addressable market, but you wouldn’t be able to tell judging by the stocks of the industry leaders. The top three by revenue, International Business Machines Corp. (NYSE:IBM), SAP SE (ADR) (NYSE:SAP), and Oracle Corporation (NYSE:ORCL), have all underperformed the S&P 500 (INDEXSP:.INX) over the last 5 years.
Nonetheless, the growth is there, and obvious in other respects. Big Data is what’s making privacy an extremely scarce commodity as we venture further into the 21st century, and it won’t be too long before privacy disappears entirely, save the thoughts in our heads we prudently choose not to publish on Facebook or Twitter. As long as we carry around a smartphone that is continually connected to the internet, we are generating data literally nonstop. It is all stored in servers around the world, most of it in a disorganized jumble with key pieces located in databases completely unrelated to one another. Without tying it all together, the picture the data make is incomprehensible.
But fuse all that data and an entire coherent picture of a life emerges. Creepy, yes, but very valuable.
Even services that aim to hide our data trail like Bitcoin, ultimately only add to it, as the nature of cryptocurrency carries with it the ability of both companies and governments to track the movement of any Bitcoin unit from its inception in the blockchain. Data generation is a positive feedback loop, with more data being generated for every effort we make to mask it…with more data. In a manner of speaking, the Matrix has already arrived.
It is difficult to classify exactly what defines the Big Data industry. Perhaps the most prominent example is Alphabet Inc. (NASDAQ:GOOGL), which rose to prominence of course through Google and its accompanying Adsense. Every time we google something we generate data about ourselves, and that allows for very targeted and successful advertising because it matches customers with what they actually want, rather than blasting an advertising net at wide swaths and hoping it catches a few fish. Is Alphabet’s now $500 billion market cap thanks to Big Data? Sort of, but it isn’t generally seen that way by those who categorize markets and industries.
Big data leaders struggling
The more traditional breakdown of the Big Data industry attributes revenue to data analytics products with current market leaders being IBM, SAP, and Oracle. IBM is far ahead of its nearest rival SAP with 9.3% market share over SAP’s 3.9%. Looking at the actual stocks though is misleading because these three giants, while making herculean efforts to shift focus to Big Data and away from other shrinking segments, are still struggling overall. It will take them time to complete the shift considering their respective sizes, so in the mean time, where is the growth investment wise?
Where is the real growth?
The real growth for investors interested in gaining exposure to Big Data comes from much smaller, more focused, less sprawling companies like Open Text Corp (USA) (NASDAQ:OTEX). One twentieth the size of IBM by market cap, its own cloud services revenue, much of which is data analytics, has almost doubled since 2014 from $373M to over $600M annually. That’s up from $173.8M in 2013, the first year Open Text joined the Big Data industry. The stock is up 170% since 2012.
This itself is not surprising in a broad strokes analysis, since the top 10 market leaders in Big Data only account for only 33% of total market share. The other 67% come from the smaller, newer players. One of them stands out among the others particularly for who founded it. Hank Asher, considered the founding father of the industry itself, began piecing together, or “fusing” data in the 1990’s for the US government, just as the internet was gaining popularity. After Asher’s untimely death in 2013, the company went through various incarnations and was eventually rebranded and taken public as IDI, Inc. (NYSEMKT:IDI).
With insiders holding 25% of its stock and biotech billionaire Dr. Phillip Frost backing the company, IDI is moving forward with its suite of data fusion products pitched to debt collectors, law firms and governments. The idea that these types of operators can easily gain access to your life through companies like IDI can be slightly disconcerting, but this is the age we now live in and there is no turning back.
IDI is not yet net profitable, but its revenues are climbing fast. In the space of three quarters, revenues have jumped from just over $1 million in Q32015 to over $41 million this past quarter. IDI still has a way to go before it becomes consistently profitable, but it is going in the right direction with good momentum and committed backers.
Big Data Convulsions
Big Data is undergoing some heavy convulsions at present. Market leader HP has split into two companies with Hewlett Packard Enterprise Co (NYSE:HPE) focusing on the data analytics side. IBM has been going on a buying spree spending $15 billion on Big Data including 20 acquisitions since 2010. The flux here is intense as market leaders scramble to reorganize themselves and smaller companies dominate two thirds of the market in the meantime. The opportunity for growth among the smaller players, as we saw with Open Text, is rife, especially as the larger conglomerates attempt a reshuffle amid struggling growth prospects in older, saturated business segments.
Big Data will not stop growing. It will only get Bigger. As it does, fusing that data to form coherent pictures will give companies ever more complete panoramas of our daily lives. Like it or not, that’s where we’re headed, so unless you’re going off the grid to be self-sufficient in the forest, one may as well invest wisely in the industry’s growth while the opportunity exists.