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Hey, Open Text: Please simplify your sales pitch

The Open Text building in Waterloo, Ont.

Kevin Van Paassen/The Globe and Mail

You can't say I haven't tried.

On a quest to grasp what makes Open Text Corp. tick, I've spent hours digging through corporate presentations, quarterly conference calls, analyst reports and press releases. Every time I revisit the tech darling, I come up empty.

It's a shame, too. I'd honestly like to know. With BlackBerry dwindling and resource companies struggling, the stage is set for Open Text to shine.

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Just look at the latest earnings. After handily beating analyst expectations, Open Text's shares were up 12 per cent Friday, a day when the S&P/TSX composite index slumped 200 points. The stock has skyrocketed 87 per cent in the past year.

Yet the work required to understand why is just too tedious for the average investor. First there are those acronyms. "Our way forward remains EIM, smarter and collaborative content with ECM, smarter process application for BPM, smarter customer experiences with CEM …," chief executive officer Mark Barrenechea said on a conference call Thursday.

Then there's the far-flung business model. Open Text earned $364-million in revenue last quarter, spread out across licensing, cloud services, customer support services and what it calls professional services, among others.

Beyond that, there's the long string of acquisitions – 48 in the last two decades. Unless someone really crunches the numbers, it's difficult to decipher between true organic growth and the smoke and mirrors of acquired revenue.

But let's be clear, there's a lot of potential here. We just want to make sense of it.

Since Open Text closed its $1.2-billion acquisition of GXS Corp. a week ago, one of its biggest deals ever, recurring revenues now comprise 80 to 85 per cent of total sales. And with the roll-out of "Project Red Oxygen" this year, offering a new suite of products, CIBC analyst Stephanie Price noted there's something to provide Open Text with another leg of growth through 2015.

Raymond James analyst Stephen Li also that if you treat Open Text's mergers and acquisitions as an expense like research and development, rather than as a mechanism to simply boost revenues in the short-term, the company trades at a sizable discount to its peers.

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However, it's only going to get harder for the average investor to track any growth. Mr. Barrenechea said Thursday that "acquisitions are core to our business model," adding that Open Text has $3-billion more to spend.

Bulking up is only going to add complexity. While the diehard tech analysts and fans are already on board, helping the company boast a $6.6-billion market value, imagine what would happen if it could get the average Canadian to breathe the Red Oxygen, too.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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