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TIBCO Software (TIBX) serves a global client list with solutions that enable businesses to integrate internal operations, business partners, and customer channels in real-time. Its middleware and infrastructure software allows systems and applications to communicate efficiently across cloud networks, physical and virtualized hardware, computing grids, and a variety of other environments. TIBCO went public in 1999, just two years after opening its doors, thanks to the value a sophisticated process and information management platform can add to a company’s bottom line.

Business

Like many Silicon Valley tech groups, TIBCO is a direct reflection of its CEO. It isn’t hard to see why Vivek Ranadivé, though probably less recognizable than Steve Jobs, Bill Gates, Mark Zuckerberg, and Jeff Bezos, is considered amongst the industry’s most influential leaders. His rise began with TeKnekron Software Systems, Inc. and a product that financial service groups used to link up multiple data programs. Ranadivé soon changed the face of electronic trading floors by delivering valuable information to traders as it was happening. “The Information Bus” was eventually bought by Reuters (now part of Thomson Reuters Corporation (TRI)) and TIBCO (The Information Bus Company) was launched under the impression that other industries could find ways to benefit from these same real-time capabilities. In fact, the notion that substance can be found within any bit of knowledge that is acquired, organized, and processed in advance defines the company’s marketing pitch.

However, delivering timely performance information alone cannot generate a competitive advantage. It is the ability to translate this intelligence that makes TIBCO important to its customers. Products and services that can integrate data and the correlation of expected behavior in actual time allows businesses to anticipate new opportunities, avoid problems, and eventually enhance their operations through more traditional measures. For example, retailers who evaluate a customer’s in-store activity can help employees influence a final purchase, possibly by suggesting substitutes that offer higher returns or by making discounted offers on goods that complement those items already in the customer’s shopping cart. Banks use these same tools to track a client’s spending habits in order to identify fraud at the first sign of an outlier.

TIBCO’s software products are generally deployed as a suite, but they can also be purchased individually to target specific challenges. The full spectrum of TIBCO offerings can be customized to fit certain industry or geographical needs, as well. Additionally, the company provides a wide range of professional services, which can be broken into consulting, maintenance and support, training, and hosted services. About 40% of 2012 revenues were represented by license fees and the remaining 60% originate from the service and maintenance segment. These figures have been relatively consistent over the past few years.

Competition, Risk, & Performance

The stock price has dropped more than 20% since the end of August and poor sales execution was cited for the loss of nearly all of its business with the federal government. This could prove to have a lasting effect considering the country’s deficit issues. However, management believes that the company is generally well positioned in the infrastructure software market. A focus on quality research and development spending, which continues to increase annually, is an essential part of competing in an industry packed with larger companies.

In fact, it is not unrealistic for a company like International Business Machines (IBM - Free IBM Stock Report), Oracle (ORCL), or SAP AG (SAP) to make TIBCO an acquisition target, though we do not think that TIBCO would be interested in a takeover. Actually, efforts to expand the product line will likely push TIBCO into the market as a buyer in 2013. The company’s cash volume is building, the cost of credit is cheap, and the technology sector is full of dynamic new talent.

In order to grow sufficiently, licensing revenues must increase as a percentage of total revenues. If this does not happen, margins will suffer due to the expensive operating nature of a consulting arm and investors will be slow to commit funds. The industry has seen stagnant sales growth to both industrial and government clients during times of economic hardship. Additionally, since contract cycles are usually lengthy and retention is difficult, increasing margins will require new customers.

Conclusion

TIBCO is reaching maturity and might find it hard to boost its share price in the same notable way that it did between 2009 and the middle of 2011. The equity should improve slowly since the spreading demand for operational improvements and technical ability remains transparent. However, the company has done a lot of work to its balance sheet. We expect management to aggressively pursue large acquisition opportunities in the years ahead.

For those interested in learning more about TIBCO’s prospects, along with the particular investment merits of the stock, subscribers are encouraged to review our full report in The Value Line Investment Survey.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.