®

The Final Piece of the Puzzle:

The Canadian Investor’s
Guide to the Artificial
Intelligence Revolution
 The Final Piece of the Puzzle:
The Canadian Investor’s Guide to the
Artificial Intelligence Revolution
Welcome Foolish Investor,

Way back in 2002, there was a small party for Google shortly before the company held its
IPO. A journalist badgered Google co-founder – and future CEO – Larry Page with questions,
wondering how the company could possibly stand out among the dozens of search engines
in the world.
Page’s answer was short, and to the point: “Oh, actually we’re building artificial intelligence.”
Now my team and I would like to introduce you to a Canadian company that’s also building
artificial technology.
While artificial intelligence (or AI) has long seemed like a technology more fit for science fiction
than investing – today it’s suddenly become a breakthrough technology. At The Motley Fool
Canada, we firmly believe AI will be as transformative as the birth of the Internet itself.
In The Final Piece of the Puzzle: The Canadian Investor’s Guide to the Artificial Intelligence
Revolution, you’ll find access to our top artificial intelligence recommendation – OpenText
(TSX: OTEX). Bear in mind, this report contains exclusive research only available to subscribers,
so we ask that you keep it to yourself. Simply read on to get the full story now.
And thank you for joining Stock Advisor Canada!

Jordan DiPietro
General Manager, Motley Fool Canada

2 The Motley Fool  fool.ca

OPEN TEXT (TSX: OTEX) By Taylor Muckerman

A wave of digitization continues to envelop companies around the world, HQ: Waterloo, Ontario
and OpenText’s vision of a “digital-first world” is ready to take investors
Website: www.opentext.com
along for the ride.
Industry Application Software
WHY BUY: Volatility Medium-High
• As processing information increases in importance, OpenText’s
Enterprise Information Management (EIM) will be the funnel that Market Cap CAD $11,290
helps organizations derive actionable insights. And, it’s Magellan Cash / Debt C$561.8/ C$3,256.1
AI-powered analytics platform will be a big reason why.
Revenue (TTM) C$2,902.9
• The nature of OpenText’s business results in a customer’s reluc-
Earnings (TTM) C$1,299.6
tance to switch; more than 70% of OpenText’s revenue is consid-
ered recurring. Total Inside Ownership 2.1%
• A rapidly expanding playbill of cloud customers — including Coca-Cola Recent Price C$42.73
and Nestle — resulting in 25.6% revenue growth in Fiscal Year 2017. Yield 1.2%
$50
Dollar amounts in millions except recent price.
$40 TTM = Trailing 12 Months
As of August 7, 2017
$30

$20

$10

$0
Aug 15 Aug 16 Aug 17

“15 years ago, you could be Amazoned, today you could
be Ubered, which is a reflection of digitalization.” – Mark
Barrenechea, OpenText (TSX:OTEX)(Nasdaq:OTEX)
President & CEO
That quote stuck out to me in one of the first OpenText
earnings conference calls I tuned into back in late 2014.
In one concise statement, he compared Amazon – a mon-
ster long-term stock and one of the top recommendations in
Motley Fool history – to Uber, a then-startup now valued
more highly than just about every TSX-listed company.
What do Amazon and Uber have in common? Both utilized
digitalization to disrupt long-standing paradigms in how
commerce and transportation were “supposed” to operate.
That’s the promise of technology. No company, or industry
for that matter, appears to be safe due to the broad swaths of
information readily available to those who want to harness
its power. That power is a better understanding of customers,
logistics, markets, or, more simply, the enterprise.
Surprisingly, the vast majority of companies still remain
unprepared to process the huge amount of data that swirls
around their enterprises. OpenText realizes this and has
placed itself directly in the chauffer seat on the road to
digital transformation, making Artificial Intelligence it’s
latest driver.
The Company
OpenText graduated from the University of Waterloo after
completing its “thesis” — that is, after it digitized all 60
million words of the Oxford Dictionary. With this newly
invented search engine technology in tow (the first of its
kind), it crossed the stage as a university research project
and emerged as a fully incorporated entity in the summer
of 1991.
Soon after, Open Text found itself employed by the likes
of Yahoo! in the early stages of the 1990s Internet boom.
Since these humble beginnings, however, its penchant for
innovation has helped build OpenText into a company that
today generates close to $2.3 billion in annual revenues.

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Through a successful blend of organic and acquisitive and analytics by streamlining organizational workflows,
growth, OpenText is now regarded as a “global go-to leader” increasing the quality of information and creating integrated
in Enterprise Information Management (EIM). Beginning user interfaces for end users within a single source platform.”
with its first acquisition in 1995, OpenText has added more The company also has a cloud business (added in 2013)
than 50 businesses into the fold by way of acquisition. that already contributes 30.8% of total revenue. In my
At the helm of the majority of these deals was Tom Jenkins. mind, OpenText’s moat is growing deeper and wider with
Brought on in 1994 as the company’s chief operating officer, every YouTube upload.
he went on to become the president and chief executive And now, as the title of this report may hint at, OpenText
officer, and is now chairman of the board. Jenkins’ old CEO is unleashing the power of machine learning to help extract
office has been occupied by Mark Barrenechea since 2012, even more insight from these exabytes. And, much like its
the same year he joined the company. intent, it’s named after the famed Portuguese navigator,
As things stand, OpenText boasts a qualified CEO at the Ferdinand Magellan.
helm, its own promising business lines to grow, and a
balance sheet well-equipped to keep on spending over the The AI Opportunity
next few years. It’s this combination that makes me believe Built to compete against the likes of IBM’s Watson and
that the market is at risk of missing out on the full picture. SAP’s Leonardo, OpenText considers its Magellan offering
quite unique because of its open source operations, making
The Business it much more customizable. It’s Chief Marketing Officer has
(Forewarning: the word “data” is used quite a bit through- called Magellan the “AI platform for the masses.”
out the remainder of this report.) My not-so-bold claim: If you’re looking for a segment
Imagine that every byte of digital data in the world could of OpenText’s business that is going to be its next big
be neatly structured into the columns and rows of an Excel catalyst, then Magellan is likely it. It’s still early days
spreadsheet. That’s what people more technically inclined (just released to the “masses” in July 2017), but with an
than me call “structured data,” and in the early days of the expected US$12.5B opportunity in the cognitive and AI
Information Superhighway it was how, well, information systems market ($46B by 2020), OpenText’s past success
was organized. at entering new markets is encouraging.
But the simple truth is that unstructured digital data is To be sure, it’s encroaching on some pretty large companies’
the future. territory. To combat their entrenchment, Magellan has been
According to International Data Corp. (IDC), unstructured priced at about 1/6th of Watson’s going rate, it’s open source
(or “file-based,” as it’s called) data storage usage grew at a (as I mentioned) and it runs on commodity hardware. And,
compound annual growth rate (CAGR) of 61.8% from 2007 according to Mr. Barrenechea, “Watson is junk.” I’ll have
to 2014. Compare that to structured, or “block-based,” data, to take his word for it because I’ve only experienced Wat-
which “only” grew at 23.7% annually over the same period. son in commercials (that I know of), but that kind of public
confidence doesn’t generally emerge without something of
What’s responsible for this separation? Over the past substance to back it up.
several years, “rich media” (e.g., movies, music, pictures,
etc.) has taken over the digital space. This is a twofold Another thing to keep in mind when considering Magellan
phenomenon—not only is a growing level of content as a reason to plunk some cash down in OpenText is that
incorporating these forms, but rich media data is also the company openly admits that it could take upwards of a
much larger than the traditional text to which Excel decade for AI to be automated -- OpenText’s ultimate goal.
wizards have become accustomed. Thankfully, we Fools are long-term investors who
Also according to IDC, in 2014, unstructured data storage wouldn’t mind waiting if the next 10 years turn out the
levels reached 69 exabytes (EB) versus “just” 11EB for same market-trouncing returns as the last 10 (336.9% not
structured data. That’s six times the level of data that can including dividends versus jus 12% for the S&P/TSX
be analyzed through traditional means, leaving the vast Composite index).
majority of information out there tough to discern connec-
tions and patterns from.
Risks & Considerations
As with most industries within the technology space, con-
Enter OpenText … tinual advancements in products and services are critical
In the company’s own words, OpenText and its EIM soft- to staying ahead of the pack. Thus far, OpenText has been
ware help clients “attain 360-degree views of their big data able to stay ahead both with organic growth and through

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acquisitions. Disappointment in either could be a setback,
especially on the acquisition front.
At the moment, management has several acquisitions
from the last year to finish integrating. Now, while it has a
more-than-impressive track record when doing so, a slip-
up during integration or overpaying for a future tack-on
could result in meaningful write-downs, lost time, or both.
Thus far, nothing has happened to foster hints of doubt,
but it’s still worth keeping any eye on.
In terms of client-specific risk, OpenText is quite diverse
across the board. At the end of FY2016, there wasn’t a
single customer that made up more than 10% of total
revenue. Geographically, revenue streams rush in from all
around the globe, with the majority (57.5%) flowing from
the Americas. This creates an established base with which
to branch out from, though management has stated it is
comfortable growing in stable locales while Europe and
certain countries in Asia become less turbulent.
One last risk to mention, and one that has been making
headlines over the past year or so (though not for Open-
Text), is that of information security.
What’s that saying? With great data comes great responsi-
bility? Or something like that…
Regardless of how you want to say it, privacy and security
are of the utmost importance. Any missteps here could lead
to the loss of clients and a tough road ahead in attracting
new ones. Much like the acquisition front, OpenText has
a great track record with security and therefore this factor
doesn’t cause us much anxiety. To be clear, though, past
performance is no guarantee of future performance.
Final Thoughts
Google processes petabytes of data each day. eBay and
PayPal handle millions of transactions each day.
And that’s just three companies (albeit three very successful
companies).
As a result, collecting, managing, analyzing, and building
out strategies to act upon the knowledge gained will set
many companies apart. Need proof? A 2014 McKinsey paper
highlighted that “digital transformation can boost the bottom
line by 50% over the next five years.” We’re roughly halfway
there, and OpenText is doing its part to help.
Now, I don’t know about you, but a 50% boost to ANY line
other than expenses, interest, or taxes sounds pretty darn
exciting to me. Thankfully for the companies wise enough
to get a head start, OpenText is there to guide them through
and provide the tools necessary to succeed in the digital
age. And, Open Text’s services aren’t just for its customers.
They also provide investors with the opportunity to gain
access to a high-margin, rapidly growing innovator with its
finger on the pulse of the digital age.
Onward!

Disclosure: All figures as of 8/7/2017 unless otherwise noted. All dollar amounts are represented in Canadian Dollars, unless otherwise noted.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Alphabet (A
shares), Alphabet (C shares), and Amazon. Tom Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns
shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, eBay, Open Text, and PayPal Holdings. Jordan DiPietro owns
shares of Alphabet, Amazon and PayPal. Taylor Muckerman owns shares of Alphabet, Amazon and PayPal.. This report is: (a) for general
information purposes only and not intended as investing advice; and (b) not to be used or construed as an offer to sell, a solicitation of an
offer to buy, or an endorsement, recommendation, or sponsorship of any entity or security by the Motley Fool Canada, ULC, its employees
and affiliates (collectively, “TMF”). This report represents the opinion of the individual author and does not attempt to give you professional
financial advice or advice that relates to your personal circumstances. © 2017 The Motley Fool Canada, ULC. All rights reserved. The Motley
Fool, Fool and the jester logo are registered trademarks of The Motley Fool Holdings, Inc. Published by: THE MOTLEY FOOL CANADA,
ULC 1959 UPPER WATER STREET P.O. BOX 997 HALIFAX , NOVA SCOTIA B3J 3N2 This publication is for general information purposes
only. The studies in this report are not complete analyses of every material fact regarding any company, industry, or investment and they are not
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