Informatica’s Plunge: A Bad Omen for Software Space?

Spending especially weak in Europe

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

Informatica (NASDAQ:INFA), one of the top players in the data integration software industry, is getting shelled today.

Data integration software helps companies manage disparate technology systems. Still, until a few years ago, it looked like there was little growth potential for Informatica. However, the company got a nice boost from emerging trends like cloud computing and Big Data, and the stock soared from $14 to $60 between 2009 and 2011.

However, the growth story might be over. Informatica stock has struggled for much of 2012, including a 25% drop Thursday sparked by a grim preliminary Q3 earnings report.

Profits are expected to range from 25 cents to 27 cents a share, with revenues of $189 million to $191 million; the Street consensus was for earnings of 34 cents a share and revenues of $200.9 million.

So why the precipitous drop in the business?

As should be no surprise, Informatica is blaming the economic standstill in Europe. Which has merit — after all, when times are tough, companies can easily push off buying expensive software upgrades and stick with what they’ve got.

Still, Europe might not be the whole story, considering the company previously warned on earnings in June, which also resulted in a stock plunge — in this case, about 30%.

In addition to the Europe’s flagging spending, the U.S. economy is looking dicey, too. Plus, you’ve got signs that China is decelerating, which is having an impact across Asia.

In other words, everywhere you look, you could easily see sharp drop-offs in IT spending, for at least the next year or so.

Informatica also is facing a squeeze on the competition side from both established names and rising stars. Companies like IBM (NYSE:IBM), Oracle (NASDAQ:ORCL) and SAP (NYSE:SAP) have strong offerings for data integration, but INFA also has to be concerned with startups like Jitterbit and SnapLogic.

Looking at the big picture, Informatica’s recent stumble might be an ominous sign for the overall enterprise software sector. Wall Street thinks so, anyway. Players like TIBCO (NASDAQ:TIBX) and Qlik (NASDAQ:QLIK) are already under pressure in today’s trading. But the bleeding could pour over into next-generation data players like Splunk (NASDAQ:SPLK).

Investors across the sector should practice caution and re-evaluate their holdings.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.”  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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