The data backup and recovery market has caught the attention of investors as companies race to address a growing list of security risks, from ransomware to massive outages like the CrowdStrike crisis. Commvault stock's recent gains highlight the trend as the shares surged by triple digits in the past 12 months.
Recently, another competitor entered the space. Rubrik completed an initial public offering. These trends underscore how the data backup industry has expanded to offer a broader range of services focused on data security and preparing for when enterprises face outages.
"I used to say we do only one thing, which is we protect our customers' data," Commvault Chief Executive Sanjay Mirchandani told IBD following the company's July 30 earnings report. "I'd say today, we do only one thing: We protect our customers' business. And with businesses, it's really around resilience, allowing customers to recover their data and their applications in the event of a catastrophic situation."
Commvault Stock: Up 120% In The Past 12 Months
Founded in 1996 as a spinoff from AT&T's Bell Labs, Commvault describes itself as a cyber resilience platform. The stock has posted more than 85% gains this year and is up roughly 120% over the past 12 months.
Shares gapped up 23% following Commvault's fiscal first quarter results on July 30. Revenue for the June-ended period grew a better-than-expected 13.4% to $224.7 million. Adjusted earnings per share of 85 cents also beat expectations and marked an 18% year-over-year increase.
"The need for resilience is paramount and we are leading the charge," Mirchandani said in a news release with the results.
The red-hot run comes after Commvault's stock was largely static for a decade. Shares hit their highest point since 2013 at the start of this year and have added on since.
Mirchandani was appointed chief executive in 2019. A year earlier, activist investor Elliott Management took a stake in Commvault and pressed for changes.
Commvault has steadily shifted more of its business toward a subscription-based revenue model, rather than perpetual software licenses. That included the 2019 launch of Metallic, a subscription-based software to back up and protect data.
For its March-ended fiscal 2024, Commvault's subscription-based revenue grew 23% to $429.2 million, representing more than half of all sales. The firm has also steadily grown its profits in recent quarters, as evidenced by its EPS Rating of 91 out of a best-possible 99, according to IBD Stock Checkup.
Focus On Resilience
Piper Sandler analyst James Fish said Commvault went through the ups and downs of transitioning its business model as a public company. But investors are taking notice of the results.
"People started putting the pieces together," Fish, who holds a neutral call on CVLT stock, told IBD. As Commvault moved steadily toward a recurring revenue model, the company "hit a bunch of milestones," he said.
In November, the company launched Commvault Cloud, which it describes as a single platform for "data protection, security, intelligence, and recovery." That includes AI capabilities and a "cleanroom recovery" aimed at allowing companies to safely recover data and reduce downtime. In April, Commvault acquired the startup Appranix, which is focused on relaunching applications during the recovery process.
"It is not so much the question that used to be asked: 'Hey, do we have a good backup?" Mirchandani told IBD. "The question you should be asking is 'Are we ready to recover?'"
The CrowdStrike outage, which shut down millions of corporate computers in July, highlighted the importance of those questions.
"We believe the recent CrowdStrike/Microsoft IT outage could generate incremental awareness for business continuity and disaster recovery solutions, potentially providing a boon for Commvault, Rubrik, and peers," Guggenheim analyst Howard Ma wrote to clients last month. Ma holds a buy call on Commvault stock.
While the outage was caused by a faulty software update and not a malicious act, it highlights how "even well-intentioned patches can cause a lot of disruptions in a business," Mirchandani told IBD.
"You need resilience, the ability to recover from" a major network crisis, he said.
Rise Of 'Gen Z' Data Backup
This is especially true with ransomware which has emerged as a particularly menacing threat for enterprises. Ransomware attacks cost companies and individuals more than $1 billion last year, according to estimates from cryptocurrency firm Chainalysis.
To respond to the trend, a new generation of cloud-focused data backup companies – which Fish at Piper Sandler calls the "Gen Z" vendors – have focused on pairing data backup and recovery with broader security features.
Rubrik, for example, said in its IPO filing this year that its products combine "backup and recovery and cybersecurity into a single platform." The 10-year-old company went public on April 25.
"Rubrik has transformed backup and recovery industry into a data security platform to deliver cyber recovery and cyber resilience," Chief Executive Bipul Sinha told CNBC, the day Rubrik went public. "This is a market transition story."
Sizing Up The Market
Piper Sandler projects the total market for data backup, archiving, recovery and security will grow from $16 billion this year to $22 billion by 2028, citing estimates from Gartner.
It is a market with a lot of competitors. The list includes tech giants IBM and Dell, along with challengers such as Commvault, Rubrik and AvePoint. Beyond that, there are privately operated companies such as Veeam, Cohesity and Druva.
Earlier this year, Cohesity announced plans to merge with a competitor, Veritas, in a deal that would value the combined company at $7 billion.
Commvault Stock Near Top Of Software-Database Group
Commvault stock currently has a 97 Relative Strength Rating out of a best-possible 99. That means shares rank in the top 3% of all stocks when it comes to 12-month performance, according to IBD Digital.
Shares fell along with the broader market in early August before recovering to a 52-week high of 156 of Aug. 26. Commvault's market cap is hovering near $6.5 billion.
Meanwhile, Commvault stock holds an IBD Composite Rating of 92 out of a best-possible 99. The score combines five separate proprietary ratings into one rating. The best-performing growth stocks typically have a Composite Rating of 90 or better.
The score places Commvault stock second in the Software-Database Group tracked by IBD. Meanwhile, Commvault has five buy calls among the nine analysts following it. The rest are neutral on the stock, often citing concerns about the company's rising valuation and strong competition.
Rubrik Earnings Due Soon
Meanwhile, Rubrik will report results for its July-ended second quarter on Sept. 9. After popping 30% in first-day trading, shares are about 10% lower from Rubrik's initial closing price.
The company has a Composite Rating of 22 out of a best possible 99, according to IBD Stock Checkup. The score is weighed down especially by its low EPS Rating of 5, as Rubrik is not profitable.
The stock is a popular pick among analysts. Rubrik has picked up 16 buy calls in its first four months as a public company. That includes from Piper Sandler's Fish, who initiated Rubrik with an overweight call on Aug. 18. "We see Rubrik growing +20% sustainably, at an attractive valuation," Fish wrote.
Mirchandani, meanwhile, welcomes having another data security company go public.
"We were the only game in town for a long time in the public space," Mirchandani told IBD. "It's nice to have someone to compare to."
