The Best Stock in a Booming Industry (Part 2)
In yesterday’s article, I shared why the time was ripe to be an entrepreneur and an investor in the mobile and social gaming sector.
In Part 2 of this mini-series, it’s time to share why the same holds true for the Big Data sector.
You don’t need to be the next Einstein to realize that we’re living in an age of increasingly vast digital information.
Quite literally, everything we do creates a digital record. From the routine doctor’s visit to our latest iTunes purchase, from a short 140-character tweet to every “friend” invitation we accept on Facebook (Nasdaq: FB).
So when I saw that Big Data made Inc. Magazine’s list of “best businesses to start now,” I wasn’t even remotely surprised. After all, back in December 2011, I highlighted the sector as another “forever growth trend.”
That’s a bold statement, for sure. But the data (pun intended) backs me up…
As my colleague, Justin Fritz, pointed out last Friday, “A new report from Cisco (Nasdaq: CSCO) projects that global internet traffic will rack up a whopping 1.3 zettabytes by 2016. That’s 1.2 million petabytes (or 1.3 trillion gigabytes) and four times as much data as we consume right now.”
In dollar terms, we’re talking about total industry revenue growing about seven times faster than overall IT spending to reach about $17 billion by 2015, according to Inc.’s, J.J. McCorvey.
Let me put the latest figure into perspective for you.
In 2010, Big Data companies only netted $3.2 billion in sales, according to market research firm, IDC. So we’re talking about a sector increasing almost six-fold in size within five years.
What’s important to understand, though, is that there are two sides to this growth. The first is how the superabundance of data is being analyzed and used. And the second involves how all the data is going to be stored.
I’ve profiled two companies levered to the data analysis side of the market before: Fusion-io (NYSE: FIO) and Splunk (Nasdaq: SPLK). Both remain attractive investments at current prices. (For a full rundown on why, check out my previous articles here and here.)
I have to admit, though. Fusion-io and Splunk aren’t entirely unique ideas anymore. Many investors are aware that the companies exist. And if they keep putting up impressive stats – Splunk just reported sales growth of 80% in the last quarter – investors are destined to start pushing share prices notably higher.
However, when it comes to the storage side of the growth, an opportunity still exists for us to be the first to profit. Here’s how…
Introducing the Leader on An Old-School Revolution
It’s no surprise that as we create more data, we need more storage. Yet few people understand that the majority of this data (43% to 60%) is archive data. In industry parlance, it’s referred to as Tier 3 data – fixed content or information that needs to be retained for various regulatory and legal reasons, but has almost a 0% chance of ever being accessed again.
As it turns out, Tier 3 data storage represents the fastest-growing segment of the storage market. By 2014, Horison Inc. estimates that 160,000,000,000 gigabytes of Tier 3 storage will be required, representing more than a 300% jump from 2008.
An inherent problem exists, however. Data storage is costly because current disk-based technologies require constant power. And yet it makes little economic sense to pay for electricity 24/7 to store data that is seldom, if ever, accessed again.
That’s where Crossroads (Nasdaq: CRDS) comes in…
Based in Austin, Texas, the company is a leading provider of data storage and backup solutions. It focuses almost exclusively on Tier 3 storage. And it’s helping spark an old-school revolution to go back to using much cheaper, tape-based storage technologies.
I know. It’s not often that you hear about going backwards in technology. But in this case, going back to an older technology is actually a step forward. How so?
Well, thanks to IBM’s recent introduction of a new file format, called Linear Tape File System (LTFS), data can now be randomly accessed on tape storage, just like it can on current spinning disk and flash drive technologies.
In other words, it’s now possible to point and click to access a single file on tape storage.
When tape storage was originally developed, such random access was not available. And the drawback ultimately led to the technology’s declining popularity. But now that the drawback no longer exists, company’s like Crossroads can develop technologies to exploit the many benefits of tape-based storage systems, including:
- Cost. Tape-based storage is considerably cheaper, averaging about $0.02 per gigabyte per month, compared to $0.07 per gigabyte per month for disk systems. So tape storage allows companies to either store the current amount of data for much cheaper or store much more data for the same price.
- Reliability. The error rate for tape storage is 1,000 times better than current disk technologies. And tape storage lasts much longer, up to 20 to 30 years.
- Reduced power and cooling requirements. The biggest cost associated with data centers is for the electricity to power the servers and keep them cool. But tape storage systems don’t need to be powered on all the time, only when they’re being accessed, so there is minimal power consumption.
All told, tape-based storage systems like Crossroads’ deliver up 80% cost savings versus current technologies.
Given such dramatic savings, market adoption isn’t a possibility. It’s a strong likelihood. It’s just a matter of getting the word out, which shouldn’t take much longer.
Crossroads quietly up-listed to the Nasdaq on September 2, 2011. It officially launched its tape-based storage solution, StrongBox, in December 2011. And it’s already gaining notable market traction.
- Shortly after launching, Crossroads shipped to its first customer, Capgemini, one of the world’s leading providers of IT services.
- Sales in the last quarter jumped 34%, on the heels of multiple StrongBox shipments.
- Fujifilm recently launched the first tape-based cloud storage product built entirely on StrongBox.
Crossroads is definitely still in the early innings of its growth. And it’s certainly a more speculative investment given its approximately $50 million market cap and light trading volume.
That being said, if management executes its market-launch strategy as planned, the company should start to see a significant ramp in revenue at the end of this year and into 2013.
Bottom line: As Rob Sims, President and CEO of Crossroads, says, “The overall explosion of data creation is threatening to overwhelm the current budget and pricing constraints of existing, largely disk-based solutions.” Indeed.
And Crossroads is one of the innovators stepping up to solve the big costs associated with Big Data. As its solutions gain market traction and meaningful marketshare, a higher share price is bound to follow. At the very least, I recommend you add the company to your watch list and track its results closely.
Ahead of the tape,
– Louis BaseneseSource:
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