Open Text CorporationOTEX

Morningstar Rating

Stock Research and Analysis

by Rafael Garcia

We are unimpressed by Open Text's long-term prospects. The company's reliance on acquisitions for growth and its increasing dependence on strategic partners that may soon become rivals diminish our enthusiasm.

Open Text sells a wide range of enterprise Read more

Bulls Say

Demand for Open Text's ECM solutions, which can identify, manage, and store corporate information, should increase as companies organize and protect their intellectual property, which is increasingly stored in electronic-format documents.

Open Text enjoys customer renewal rates of about 90%. Of its license revenue, about 35% comes from new customers, and 65% comes from existing customers.

Stringent e-mail storage and document archive regulations imposed by the Patriot Act, Sarbanes-Oxley, Basel II, and Health Insurance Portability and Accountability Act are benefiting Open Text.

Open Text's technology has been deployed across several government agencies. For example, the FBI recently implemented the company's products to facilitate safe collaboration within the organization. Read more

Bears Say

As more competitors enter the market, ECM is becoming a commodity. Therefore, the company must continuously spend to keep its software up to date.

While Open Text has a done a series of tuck-in acquisitions, integration issues have emerged in the past. Perhaps more worrying is the fact that so far, there has been no clear benefit to profitability.

The ECM market is getting crowded. In addition to big traditional software firms, other software companies have been attracted to the ECM market. For example, the acquisition of a small ECM firm by Salesforce.com CRM signals the company's interest in providing content-management services to its customers.

Open Text derives about 50% of its revenue from maintenance revenue, which is the second most profitable segment. While the company has experienced a historical renewal rate of about 90%, it faces increasing pricing pressures from its customers. Read more

Strategy

Open Text's strategy is to market its integrated enterprise content-management software to corporations and government agencies. To appeal to the broadest possible audience, the company partners with Read more

Management

P. Thomas Jenkins has been chairman since June 2005, after serving as CEO from 1997 until then. As of June 2009, Jenkins owned about 3% of the shares. John Shackleton succeeded Jenkins as CEO. He owns about 0.5% of the company, down from 1.5% a year Read more

Profile

Open Text grew out of a technology project involving the Oxford English Dictionary at Canada's University of Waterloo in the mid-1980s. Its software allows clients to archive, Read more

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