Big Data Equals Big Profits?
Remember the last time you were online shopping and the website provided a recommendation on other items to buy?
Chances are the recommendations were based on sophisticated analysis of thousands or even millions of previous purchases by other customers. Buying patterns would have emerged which the website used to predict other items you would most likely buy.
This is big data analysis at work. The use of computing power to store and analyse massive amounts of data to reveal useful trends is set to soar. As our lives have become more digitised the amount of data created about all of us has increased dramatically. For example, IBM estimates that 90% of data in the entire world’s history was created in just the last 2 years.
The graphic below puts into some perspective the huge amount of digital data generated around the world.
With the enormous increase in digital data being generated, there are vast opportunities for many international listed companies to use big data to improve their business and better serve customers. Those companies that succeed in providing or utilising big data analysis will be very well placed to rapidly grow their profits. In fact, big data is likely to become one of the most profitable investing trends over the next decade.
There are a sizeable number of international listed shares that have started benefitting from big data. Here are two of them leading the big data revolution.
Listed on the NYSE, IBM has been synonymous with major technological advances throughout its 100 year history. However, over the past few years it has been hampered somewhat with slowing legacy businesses.
As a result, many in the market may view IBM (a US$140 billion market cap company) as entering a long term downward spiral. In fact, the opposite is much more likely to be true.
IBM is now a global leader in big data analysis having invested billions of dollars in research and development. The company’s Watson cognitive computing system is the posterchild. Most famous for winning the Jeopardy quiz show against human opponents, Watson understands and can interpret unstructured data from “reading” millions of pages of information.
IBM’s big data analytics service is now used commercially in a range of data intensive industries. For example, in cancer research it has been able to reduce research time from years to weeks. In Australia large companies such as Woodside have started using Watson.
What does all this mean for IBM’s financial performance?
IBM have a stated target of growing its big data analytics and cloud offering from US$25 billion revenue in 2014 to US$40 billion revenue by 2018. By that stage it will represent more than 40% of IBM’s total business and will be the major growth engine for the company. Even if IBM is only able to keep its legacy businesses flat, the rapidly growing big data and cloud offerings may well turn IBM into a much more valuable company.
Listed on the NASDAQ, Splunk (with a market cap of US$7 billion) is one of the few pure play listed big data companies. The company provides software to customers that collect and analyse data from a range of sources including websites, servers, networks, applications and mobile devices. The data is then turned into valuable insights to help with critical decision making.
Splunk is now used by over 10,000 customers worldwide with great return on investment. For example, the convenience chain 7-Eleven has increased its marketing campaign planning speed by 80% using Splunk while a large online travel company has seen 25 times return on investment using Splunk. These statistics mean those companies who have successfully integrated Splunk into their systems are very unlikely to stop using Splunk anytime soon.
The company is growing very fast having more than doubled its revenue over the past 2 years. However, profits are not large as the company continues to invest in growth. From a pure earnings perspective the shares are not cheap, but for those wanting exposure to a high growth leader in the big data industry then Splunk is well worth a look.
Kent Kwan is a co-founder of AtlasTrend, a global equities fund manager that makes it easy for anyone to invest in the world's most thriving trends.
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