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Will OpenText Launch an App Marketplace?

Posted on Tuesday, May 21st 2019

According to a Persistence market research report, the global enterprise information management solutions market is estimated to grow to $70 billion by 2025. Waterloo, Canada-based OpenText (Nasdaq: OTEX) is a leader in the market that has grown through acquisitions and a well-defined platform strategy.

OpenText’s Offerings

OpenText was founded in 1991 at the University of Waterloo as a project to create a full-text indexing and string-search technology for the Oxford English Dictionary. The project resulted in a search engine that supported searches within user-defined document structures. Its new search engine technology was soon adopted by several key players including the Oxford University Press, the Canadian Pharmaceutical Association, and Yahoo!

Since being founded, nearly three decades ago, the OpenText project has come a long way. Today, it is a publicly-traded Canadian software company with more than 8,200 employees spread across more than 140 offices worldwide. Its products help organizations with management and security of unstructured digital data, content management and discovery, customer experience management, digital process automation, BI and analytics delivery, and access to forensic capabilities across all endpoints. Its solution suites can be deployed both on premises and in the cloud.

OpenText’s Financials

OpenText primarily earns revenues through subscriptions for its cloud-based services and its customer support services. For the recently reported third quarter, OpenText saw revenues grow 5% to $719.1 million, compared with $714.8 million forecast by the market. It ended the quarter with a net income of $72.8 million, or $0.27 per share. On an adjusted basis, it reported an EPS of $0.64, which was ahead of the market’s forecast of $0.59 for the quarter.

By segment, OpenText saw cloud services and subscription revenues grow 14% over the year to $238.6 million. Revenues from customer support services declined 0.5% to $310 million. License revenues grew 17% to $98.7 million and professional services and other revenues segment registered a decline of 12% to $71.1 million.

For the current fiscal, OpenText is expected to post revenues of $2.89 billion with an EPS of $2.76. Analysts expect it to record revenues of $3.03 billion with an EPS of $2.92 for the next fiscal.

OpenText’s Acquisitions

OpenText has recorded growth both organically and inorganically. Since being founded, the company has made 42 acquisitions. Recently, it announced the acquisition of Catalyst Repository Systems for $75 million.

Denver-based Catalyst Repository Systems provides e-discovery technology for corporate legal departments and top law firms. It was founded in 2000 and its flagship product Catalyst CR offers a hosted search, review, and analytics platform capability focused on legal documents. It also has a range of products that provide a central repository for the case and matter files.

Catalyst’s financial details are not known, but the company was privately held and had raised $32 million prior to the acquisition. OpenText plans to integrate Catalyst’s products into its discovery solutions to help customers further leverage their technology investments.

Late last year, OpenText had also announced the acquisition of Alpharetta, Georgia-based Liaison Technologies, for an estimated $310 million. Liaison offered its customers a cloud-based information integration and data management solution. Its ALLOY Platform helped modernize, streamline, and accelerate complex information integration for global intelligent and connected enterprises. Its B2B and application-to-application integration solutions are deployed in healthcare and financial services industries.

OpenText is leveraging Liaison’s technology to improve its Business Network and Cloud offering to help its customers build application networks in mobile, cloud, SaaS, and Omnichannel. Liaison had raised $45.7 million prior to the acquisition and did not disclose its financial details.

OpenText offers developers access to its platform to allow them to configure and customize it to their needs. Available through the OpenText AppWorks Developer program, developers can create applications through Digital Process Automation. The AppWorks Gateway helps developers efficiently deploy all of the APIs, web services, and mobile applications they build with OpenText AppWorks. It provides a single sign-on, centralized application and audience management, along with seamless application updating capabilities and provides access to all of the capabilities of OpenText Enterprise Information Management.

While its platform allows for customization, OpenText does not, as yet, offer an app marketplace allowing developers to trade in these apps. I think that could be the next step that it could explore to drive growth.

The market is pleased with OpenText’s performance so far. Its stock is trading at 52-week high levels of $40.98 with a market capitalization of $11 billion. Like other technology stocks, it had fallen to a 52-week low of $39.97 in December last year.

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