IBM & Tealeaf, An Inorganic Move Towards Success

by Anuradha Gupta
+40.60%
Upside
162
Market
227
Trefis
IBM
IBM
Rate   |   votes   |   Share

Submitted by Anuradha Gupta as part of our contributors program.

International Business Machines Corporation (NYSE: IBM), the world’s largest computer-services provider, announces another acquisition of Tealeaf Technology, Inc., a leading provider of customer experience analytics software, taking one more step of achieving the objective of $20 billion in revenue growth by 2015. Since the beginning of 2000, they have acquired 130 companies in strategic areas including analytics, cloud, security and smarter commerce and it expect to spend $20 billion in acquisitions over the 2015 road map period to support growth initiatives.

Tealeaf is the third acquisition IBM has made to expand what it calls smarter commerce in the past year. It has made six purchases in that area since 2010. The key divisions of IBM’s for high-growth spaces that should drive approximately $20 billion in revenue growth by 2015 are, growth markets, business analytics, cloud and smarter planet. The Smarter Planet offerings generated close to 50 percent growth year to year, with Smarter Commerce demonstrating strong market momentum. With the acquisition, IBM extends its Smarter Commerce initiative by adding qualitative analytics capabilities that provide chief marketing officers (CMOs), e-commerce and customer service professionals with real-time and automated insights into online customer buying experiences across online and mobile devices. As a result, organizations can gain actionable insight that allows them to improve customer support, transform site usability, tailor marketing campaigns and increase online conversion rates.

IBM has acquired 28 companies to build targeted analytics and information expertise since 2005. It has generated hundreds of patents a year in analytics, and invented breakthrough technologies like IBM Watson, a learning system that answers questions in natural language, and InfoSphere Streams, software that can correlate and analyze thousands of real-time data sources. Software revenue increased 8.7 percent (9 percent adjusted for currency) driven by strong growth in the focus areas of Smarter Commerce, business analytics and storage solutions.

The acquisition will help IBM in various areas:

Expansion of Smarter Commerce Business:

In 2011, software revenue of IBM increased 8.7 percent (9 percent adjusted for currency) driven by strong growth in the focus areas of Smarter Commerce, business analytics and storage solutions. The total market size for online commerce expected to hit $1 trillion by 2014 and mobile commerce $200 billion by 2015, with Tealeaf, it can awarded with new revenue streams.

Acquisition of Existing Customer Base:

Tealeaf has over 450 customers worldwide including 30 of the Fortune 100 companies. These customers are predominantly in financial services, travel, and retail and communications services. Current clients include: Dell, Wells Fargo, Air Canada, GEICO, Orbitz, Crate & Barrel, Neiman Marcus, Expedia, Zappos, ING Direct, Best Buy, DirecTV, McKesson and StubHub. The existing customer base will be shifted to IBM that can create upward synergy. Tealeaf will extend IBM’s leadership in Smarter Commerce by giving companies qualitative web and digital analytics capabilities, allowing them to capture and replay a customer’s web and mobile interactions to provide a more granular and richer view of a customer’s experience.

Tealeaf acquisition also drives a positive move for IBM and the stock price has rocketed up to 0.11%. As per the Q1, 2012 earning update growth markets revenue up 9%, business analytics revenue up 14 and smarter planet revenue up more than 25 percent. To sum up, the move will drive the stock price to upward direction.

Price Estimate for the Year 2012

Valuation Highlights:

Middleware Software constitutes 46.1% of the Trefis price estimate for IBM’s stock.
Technology Services (Strategic Outsourcing, Business Outsourcing, Integrated Technology Services, and Maintenance Services) constitute 23% of the Trefis price estimate for IBM’s stock.
Business Services constitute 12% of the Trefis price estimate for IBM’s stock.

The acquisition of Tealeaf aims to accelerate IBM’s growth in the smarter buildings market by adding advanced intelligence. Trefis believed that Tealeaf will help boost IBM’s middleware software sale which usually is the core platform in all of IBM’s Smarter Planet offerings. Middleware Software constitutes 46.1% of the Trefis price estimate for IBM’s stock. IBM makes money primarily through the sale of middleware software and technology services such as outsourcing and integration. We estimate that IBM’s middleware software division will have EBITDA margins of over 40% during our forecast period. In comparison, we estimate that the businesses within Technology Services will have EBITDA margins of about 20% and Business Services will have EBITDA margins of about 16% over the forecast period.

Smarter Planet is the sub division of IBM’s middleware software (which contribute 46.1% of total estimated price i.e. approximately $103) IBM Middleware License Revenues saw heady annual growth of over 10% during 2006-08 reaching over $5 billion driven primarily by sale of WebSphere as IBM gained market share to become the number one player in the middleware software market. The estimate of 8.41% of revenue growth for this division in 2012 will change slightly to 9% for 2012 and will touch to $23.86 Bil.

Forecasting Rational:

The total market size for online commerce expected to hit $1 trillion by 2014 and mobile commerce $200 billion by 2015, linked to this point for CAGR of 2012′s 8.41%.
Tealeaf has over 450 customers worldwide including 30 of the Fortune 100 companies.
The existing Forecast Rationale for web sphere software and information management software.

Source:

http://www.trefis.com/stock/ibm/articles/33161/ibms-smarter-planet-iniatives-lay-groundwork-for-growth/2011-01-10

http://economictimes.indiatimes.com/news/international-business/ibm-to-buy-tealeaf-technology/articleshow/12969225.cms

http://www.nasdaq.com/article/ibm-to-acquire-tealeaf-technology-inc-to-help-marketers-deliver-exceptional-digital-experience-for-smarter-commerce-20120502-01239

http://www.ibm.com/us/en/

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!