More on Autonomy
Autonomy: initiating coverage
Autonomy is a software company that specialises software that helps find and organise information. Although Autonomy is very keen to emphasise the technological difference between their products and alternative approaches, their core technology is essentially a search and clustering technology and competes as such.
Autonomy’s competitors include some very well known names (those that also supply public services such as web search) as well as others that are less well known outside the industry.
Autonomy’s technology applies statistical and mathematical techniques that have long been used for artificial intelligence, but which have more recently found a wide variety applications. Autonomy is the leading exponent of the use of these approaches in search.
Autonomy’s recent performance has been extremely strong. Revenues rose 48% in 2005 and 203% in the first quarter of this year. Autonomy suffered several years of relative stagnation with a slow recovery from the dot com bust leaving revenues in 2004 were virtually unchanged on 2000. The return to strong growth is very encouraging but without either a clear trend or a predictable market future growth is very hard to forecast.
At 481p, even with the strong growth expected next year Autonomy is trading in a prospective PE of 28×. The question for investors is how long strong growth will continue for.
It is true that many large organisations spend heavily on managing and organising increasingly large amounts of information. If Autonomy is able to take significant market share it will be able to generate several years of spectacular growth - making even its high rating look cheap. However, while we are convinced the market will grow, it is very difficult to predict how much of it Autonomy will take against stiff competition.
Autonomy is a very risky buy, but an attractive on that could bring spectacular returns.
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