Buying in to Electronic Discovery - Epiq and Symantec
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many companies encourage the switch to electronic documents to reduce paper waste, and with the falling cost of data storage due to cloud computing, companies find it easier to store additional electronic records. With more electronic records in existence, lawyers find searching through these records more difficult. Companies that produce electronic discovery software help lawyers quickly locate and analyze the documents that are most relevant to a specific case.
Electronic discovery software helps a law firm reduce its costs. Although document review work often costs less than other services that lawyers perform, a law firm can still reduce its legal costs significantly with the software because it needs to hire fewer lawyers. The law firm can also find the relevant data much faster using electronic discovery, reducing the amount of time it needs to make decisions such as whether to settle a case.
Electronic discovery software protects lawyers. A lawyer needs to make sure that his client has provided sufficient information about a case before he makes his argument. If the client did not provide certain documents to the lawyer and the court, the lawyer may make an argument that the documents contradict, which may convince the judge to punish the lawyer if the judge believes that the omission was intentional.
Epiq Systems (NASDAQ: EPIQ) announced its quarterly results on February 29th. The company's overall profitability decreased, as the company's 4Q profit fell from $3.1 million last year to $1.9 million this year, but the company reported higher revenue for the quarter, and much better e-discovery revenue for the year. Epiq announced that its total operating revenue reached $261 million for the year, with e-discovery providing more than half of this operating revenue at $133 million.
Symantec (NASDAQ: SYMC) is familiar to consumers because of its Norton anti-virus package, but its managers also realize the growing potential of the electronic discovery market, as the software vendor purchased Clearwell Systems last year. Epiq also made a major electronic discovery buy last year when it picked up De Novo Legal. Symantec is much larger than Epiq, with a market capitalization of $13 billion versus Epic's $446 million, and it does not trade at as much of a premium, with a 17.22 price to earnings ratio compared to Epiq's 34.63. Symantec reported 82 percent higher net income on January 25th than it earned in the third fiscal quarter of 2011, and its overall revenue rose by 7 percent.
Epiq and Symantec can both benefit from an increase in demand for e-discovery software, although higher sales in this market may produce better results for Epic because it relies more heavily on electronic discovery products to obtain its revenue. Symantec is still in a good position to capitalize on this market, and the company showed great overall performance last quarter, so it can still perform well if electronic discovery product sales do not meet investors' expectations.
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