These are pretty good days to be a small software company. With Oracle (Nasdaq:ORCL), SAP (NYSE:SAP) and Hewlett-Packard (NYSE:HPQ) showing a seemingly indefinite willingness to open their wallets to round out their product verticals, valuations for stand-alones has been on the upward march. With an attractive middleware business in service-oriented architecture, TIBCO (Nasdaq:TIBX) has certainly been buoyed by a favorable one-two of an improving IT market and a nice and toasty M&A environment.

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The Quarter That Was
That aforementioned improving IT environment certainly helped TIBCO's fiscal third quarter. Revenue was up 23% (license revenue up 23% and service revenue up 22%), and the company lifted its guidance more than 5% above Wall Street's prior bogey. Although TIBCO beat the revenue guess for this quarter by about 5%, it was not a totally spotless quarter - bears can nitpick that the company did a smaller number of large deals (13 vs. 17 last year) and added fewer new license customers. Still, a beat is a beat, especially when combined with a hike in expectations.

TIBCO also managed to maintain that momentum below the top line. The company saw its operating margin jump nearly three percentage points, and non-GAAP operating income jumped 39% from the year-ago level.

The Road Ahead
TIBCO is more or less one of the last men standing in that service-oriented architecture component of the middleware world. As an investor might imagine, there is the pressure of competing with bundled offerings from the likes of IBM (NYSE:IBM) (which has about half of the SOA market), Oracle, SAP and Microsoft (Nasdaq:MSFT), and the buoyancy of being independent of those giants and possessing that M&A scarcity value. Some clients do not want the hassle of dealing with multiple vendors, and throw their lot in with the major software companies; others are turned off by those same huge companies and prefer to mix-and-match what they believe are "best of breed" options.

What that all means is that TIBCO has a solid business today and will likely always have a little breathing room as the giants butt heads for the really big accounts. On the other hand, it is just not all that common to see a company like TIBCO hang around as an independent indefinitely. Sooner or later, somebody is almost certainly going to see a TIBCO-shaped hole in the tapestry and pay what they have to pay to buy the company.

The Bottom Line
Although TIBCO's shares have done quite well over the past year, and almost certainly have benefited from takeover chatter, the shares are not crazy expensive. It is not necessarily fair to compare apples to oranges, but a quick glance at stocks like (NYSE:CRM) or Red Hat (NYSE:RHT) suggest TIBCO shares could still go higher. There is not an easy "buy TIBCO, it is cheap" argument to make here, but this is certainly a name that active tech investors and momentum investors should watch - there is more than one way to make money in the markets, and it is not always just value guys who have all the fun. (For related reading, take a look at Momentum Trading With Discipline.)

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Tickers in this Article: TIBX, ORCL, MSFT, RHT, CRM, IBM, SAP

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