What happened
Informatica (NYSE: INFA) stock investors had a good day on Thursday. Shares of the cloud data management specialist rose 10% in early trading compared to a slight decline in the S&P 500. The daily spike was enough to push returns to over 20% so far in 2023, above the broader market's 17% increase to date.
Thursday's rally was powered by a second-quarter earnings report that showed solid sales momentum for the business.
So what
Informatica revealed after the market closed on Wednesday that revenue rose 1% in fiscal Q2 (ending in late June). Looking deeper into the sales trends, its cloud subscription sales jumped 37% thanks to higher demand for data management services.
The company saw encouraging success in attracting large clients to its platform. The count of customers committed to over $1 million in annual subscriptions grew 22% to 213. "Q2 was another strong quarter for Informatica," CEO Amit Walia said in a press release. Wall Street was also pleased to see the company deliver positive free cash flow and a modest operating loss, surpassing management's short-term forecast on each of these critical metrics.
Now what
Informatica is projecting accelerating gains ahead, too. Sales growth should speed up to 8% in the third quarter, which translates into roughly $400 million of revenue. Operating profit will be solidly positive on a non-GAAP (adjusted) basis, too.
On the downside, management left its sales outlook for fiscal 2023 unchanged even though the company outperformed in this area in Q2. But Informatica hiked its projection on adjusted earnings and cash flow. Combined with the accelerating growth trends, these factors all contribute to a brightening outlook for the software-as-a-service business.
Investors will still want to watch key metrics like operating profit. Informatica needs to continue winning new clients in the data management space as well, especially in its AI-powered platform.
Maintaining positive momentum in these areas could help Informatica extend the stock price rally deeper into 2023. Yet investors should brace for volatility with this stock as the company works to demonstrate a clear path toward sustainably positive annual earnings.
10 stocks we like better than Informatica
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Informatica wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 1, 2023
Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
