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On Friday, Goldman Sachs analyst Kash Rangan revised the firm's stance on Informatica (NYSE: INFA), downgrading the stock from Buy to Neutral and significantly reducing the price target to $20.00 from the previous $38.00. The downgrade follows Informatica's fourth-quarter results, which fell short of consensus expectations in key metrics such as revenue, annual recurring revenue (ARR), and operating income. According to InvestingPro data, the company maintains impressive gross profit margins of 80.35% and currently trades at a market capitalization of $7.7 billion, though analysis suggests the stock may be undervalued at current levels.
Rangan cited several reasons for the downgrade, including the slower-than-expected transition of Informatica to cloud services. The company's guidance for fiscal year 2025 suggests a 25% growth in Cloud ARR, which is below Goldman Sachs' estimate of 35% and well beneath the company's own previous mid-term guidance of a 31-33% compound annual growth rate from fiscal years 2023 to 2026, a target that has now been withdrawn. Despite these challenges, InvestingPro analysis shows the company maintains a healthy current ratio of 1.82 and operates with a moderate level of debt, with total debt to capital at 19%.
The analyst pointed out that the company is experiencing higher churn rates than anticipated in both cloud and self-managed/maintenance ARR, excluding migrations. This is partly due to weaker execution on renewals. Additionally, customers are opting for shorter-duration self-managed contracts, which is negatively impacting overall revenue growth.
Another factor influencing the downgrade is the accelerated shift from maintenance to cloud modality. While this shift has shown strong expansion once customers transition to Informatica's Intelligent Data Management Cloud (IDMC), with cloud net revenue retention consistently over 115%, it also leads to a short-term reduction in net new ARR due to the accounting treatment of subscription credits when a maintenance customer fully migrates to the cloud.
Rangan reflected on the broader implications of these developments, stating that they lead to a "material degradation in Revenue/FCF growth that was central to our Buy thesis." The analyst concluded that it is prudent to step back and observe Informatica's operational performance, looking for signs of stronger execution that could support improved growth in both revenue and free cash flow.
Since Goldman Sachs upgraded Informatica to Buy on February 15, 2024, the company's shares have dropped by 26%, which contrasts with the NASDAQ's 25% gain during the same period. InvestingPro subscribers have access to 10+ additional exclusive tips and comprehensive analysis for INFA, including detailed Fair Value calculations and financial health metrics that could help investors make more informed decisions during this period of market divergence. The Pro Research Report available on the platform provides deep-dive analysis of Informatica's fundamentals and growth prospects.
In other recent news, Informatica has been the focus of multiple financial analysts' adjustments following its fourth-quarter 2024 results and 2025 outlook. BofA Securities downgraded Informatica's stock from Buy to Neutral and reduced the price target to $20.00, citing concerns about execution challenges, revenue sensitivity, and foreign exchange headwinds.
Similarly, Cantor Fitzgerald lowered its price target for Informatica to $18.00 due to the impact of changes in contract renewal terms on revenue and the company's performance in cloud modernization deals. Truist Securities, while maintaining a Buy rating, brought down its price target on Informatica shares to $24, following a disappointing fourth quarter for the data management company.
Baird analysts also adjusted their stance, downgrading the stock from Outperform to Neutral and cutting the price target to $19.00. This decision was influenced by Informatica's weaker renewals and increased churn in both on-premise and cloud segments.
These recent developments come in the wake of Informatica's fourth-quarter revenue falling short of analyst expectations, despite surpassing earnings estimates. The company's total revenues decreased 3.8% year-over-year, with lower renewal rates and shorter durations of self-managed subscriptions cited as contributing factors.
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