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On Thursday, Goldman Sachs (NYSE:) made a significant adjustment to its stance on Informatica shares, upgrading the stock from Neutral to Buy. The firm also increased the price target to $44.00, rising sharply from the previous $26.00. The upgrade follows Informatica’s impressive fourth-quarter results, which surpassed all key metrics compared to Goldman Sachs’ estimates. Notably, Subscription Annual Recurring Revenue (ARR) saw a 2% increase, Cloud ARR was up by 1%, and unlevered free cash flow (uFCF) jumped by 23%.
Goldman Sachs’ endorsement is rooted in Informatica’s confirmation of its Fiscal Year 2024 ARR guidance during Analyst Day, which is now calculated off a higher base. Informatica is viewed as an attractive investment, offering a high-quality, free cash flow-generating asset with a strong competitive position. The company is recognized for its rapid innovation and clear pathway to double-digit growth in both top and bottom lines over the medium term.
Previously held concerns regarding the sustainability of Cloud ARR growth have been alleviated. Informatica’s shift towards a cloud-only sales approach, including the end of support for self-managed solutions, along with effective migration tools such as PowerCenter Cloud Edition, are expected to maintain robust new net ARR in the cloud. This is supported by ongoing digital transformation and the advent of generative AI.
Central to Goldman Sachs’ optimistic outlook is the potential for Informatica to exceed expectations in Cloud ARR growth. The firm projects a compound annual growth rate (CAGR) of 35% for Informatica’s Cloud ARR through Fiscal Year 2026, which is higher than the company’s own guidance of 32%.
This acceleration in revenue and ARR is anticipated to outpace the broader market estimates. It is based on several factors, including Informatica’s consumption pricing model for its Intelligent Data Management Cloud (IDMC), the predictable transition from self-managed and maintenance solutions, and the consolidation of data management tools where Informatica is the leading entity.
Goldman Sachs also sees Informatica benefiting from market share gains within a strategic Cloud Total Addressable Market (TAM), which is expected to grow by 26% through Fiscal Year 2027, reaching $62 billion.
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