Autonomy: Discovered the Search Revenue Secret
July 21, 2008
Autonomy reported its financial results for its second quarter. You can read the firm’s announcement here. The firm beat analyst expectations. For the period April May June 2008, Autonomy reported revenues of $126 million with an adjusted pretax profit of $51 million. Financial mavens with MBAs and Excel spreadsheets expected revenues of about $41 million. Autonomy’s financials reveal that the company may have found the secret to search revenue generation.
Most companies engaged in search and content processing must struggle to generate growth. For many, profits are like a lump of camphor in the 12th century–out of reach to everyone except those with a lock on a Genoese trading deal.
How does Autonomy do it? is a question that Endeca, Fast Search & Transfer, and more than 300 other companies engaged in fighting for revenues in this enterprise search space? One hint may be Autonomy’s license revenues. These are fees paid to the company by other vendors who use the Autonomy technology in third party applications. Licensing revenues, an approach to search cash, had long been a staple of Verity’s money mix. When Autonomy acquired Verity, Autonomy inherited some of these deals. Like annuities, licensing deals keep paying without much more than caretaker maintenance. A full run down on the Autonomy financial news is available from Google Finance here.
Another hint about Autonomy’s secret formula for money is that two markets have been robust: financial services and media.
Autonomy has been firing news releases at traditional media and news aggregators about contract wins in France and Spain. Plus Autonomy has found customers interested in managing email in order to comply with a crazy quilt of regulations, rules and guidelines.
Coming off a remarkable 12-week run which saw Google and Microsoft share prices take kidney shots, Autonomy is making headway where larger, arguably more technically sophisticated companies are struggling.
The question going forward is, “Will Autonomy continue to assert that it is in the enterprise search business?” The range of products the company offers now stretches from video to fraud detection. Autonomy should be viewed as a diversified enterprise software company of which search is a modest, though important, component. With this type of repositioning, I wonder if Autonomy’s share price, which is considered by some to be in the value stock range, could generate more lift.
Autonomy’s performance–financially, technically, and strategically–warrants close observation. Can the Autonomy wizards repeat the trick in the next two quarters in an arguably difficult financial period?
Stephen Arnold, July 21, 2008
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