AUTONOMY is one of the most divisive companies in the FTSE 100. To the bulls, it is the closest thing Britain has to Microsoft or Google, a genuine trailblazer in the field of meaning-based computing (technology that can understand human interaction). For the bears, the firm’s needless complexity masks the fact that growth – which was always fuelled by acquisitions – is slowing down.
Recently, the doubters have had the upper hand. Earlier this month, the firm was forced to issue a profit warning for the full year that sent shares plummeting by 17 per cent. In the event, yesterday’s third quarter results weren’t that bad, and Autonomy says it was too cautious.
That won’t satisfy some. Cash conversion, a perennial problem for Autonomy, came in at 80 per cent in the third quarter, below an average conversion of 117 per cent achieved in the same quarters of 2008 and 2009. This can be partly explained by $15.9m it shelled out to sponsor Tottenham Hotspurs, but it’s an issue that won’t go away. Others point out deferred revenues, another hot topic, are set to increase in the next quarter, suggesting a slowdown for the software firm.
But the share price could also be seen as a buying opportunity. Management’s change of tone was reassuringly bullish; IT spending will rise; new deals are being closed; and an acquisition that will be earnings accretive is due soon. Above all, Autonomy is the leader in this relatively untapped sphere of computing: it doesn’t go head to head with the same competitor in any more than three per cent of deals.