Informatica CEO sees no slowdown in cloud growth – Business
Reports of Salesforce Inc.’s failed acquisition bid apparently did nothing to damage Informatica Inc.’s momentum, as it reported first-quarter 2024 earnings and revenues that beat analyst estimates.
Total revenue increased 6.3% to $389 million, up from $365 million a year ago and slightly ahead of analyst estimates of $388 million. Net income of 22 cents a share increased from 15 cents a share a year earlier and slightly ahead of analyst estimates of 20 cents a share.
The two metrics Informatica likes to stress most in quarterly earnings — subscription annual recurring revenue and cloud subscription ARR — showed healthy increases. Subscription revenue grew 13% year-over-year to $1.16 billion, while cloud subscription ARR, driven by the company’s Intelligent Data Management Cloud, increased 35%, to $653 million.
The number of ARR customers spending over $1 million annually also grew by 24%, while the average subscription size grew by 20%.
Chief Executive Amit Walia (pictured) wouldn’t comment on reports of a bid by Salesforce, saying business has been strong all quarter. “The IDMC platform adoption is growing gangbusters with 69% year-over-year transaction growth,” he said in an interview with SiliconANGLE. “Our net retention rate is 124%, meaning customers are using it and cross-selling and upselling and buying more stuff.”
Three key metrics
Cloud transactions are one of three areas the CEO said he watches most closely. The second is revenue from modernization projects, which more than doubled this quarter. Although only 5.5% of the company’s legacy on-premises customers have migrated to the cloud, that figure is up from 4.8% the previous quarter. Walia said he expects the pace to pick up as modernization services like Cloud Data Integration for PowerCenter kick into high gear.
“One dollar of on-prem spending converts to two dollars in the cloud,” he said. “The spending on servers, storage, people, patching, migrating and upgrading goes away 100% when they move to the cloud. And then they’re getting a much more advanced product.”
Walia wouldn’t comment on the company’s internal forecast for cloud migration but estimated the opportunity to be at least $750 million within the company’s installed base. “We’re still in the early innings of that $750 million that can be migrated,” he said.
The third is generative artificial intelligence, which requires large amounts of data integration and governance.
“We’ve started seeing our IDMC platform being used for gen AI use cases,” he said. Customers like financial services firms “are using IDMC to bring data from many sources of internal and external information, and we allow them to basically route it to whichever model they want to use.”
Informatica will enter the generative AI market in two days when its Claire GPT chat engine goes into general release. The company expects to benefit from Claire GPT’s ability to make its services available to a broader audience and pricing based on Informatica Processing Units, a unit of capacity the customer buys in advance.
“We fully expect customers to be using Claire GPT and burning down existing IPU,” Walia said. “We believe this will be a tailwind for us for many years to come.”
In-line guidance
Informatica issued guidance in line with its previous forecast. It expects second-quarter revenues to grow approximately 7% to between $394 million and $410 million. Subscription ARR is expected to be in the range of $1.168 billion to $1.188 billion, and cloud subscription ARR is expected to grow 35% to between $687 million and $697 million.
Despite the strong results, Informatica shares have been trending down this month, closing Thursday at $30.32, about 22% below a high of $38.81 three weeks ago. If Wall Street is confused about the company’s strategy, Walia said he doesn’t know how it could be clearer.
“I think we’ve done a fantastic job communicating what our overall growth strategy is and how we are executing against it,” he said. “A year ago we said we’re going to be cloud-only consumption-driven and we’ve been consistently beating everything we have along the way. Given how we started this year, beating against our guide in Q1, I feel like we are set up again for a very good year.”