Splunk – Analyst Day Update Target Price $68

SPLK : NASDAQ : US$57.25
BUY 
Target: US$68.00

Technology — Enterprise Software — Infrastructure
ANALYST DAY TAKEAWAYS: STILL PLENTY OF ROOM FOR GROWTH

 
With the 26% increase in SPLK shares since the firm last reported results at the end
of August, the stock is again sporting a top decile valuation, at more than 11x
C2015E EV/revenue. While this may be hard for some to stomach in today’s skittish
tape, we continue to believe that continually increasing use cases will drive capacity
expansion (and revenue growth) beyond what current estimates capture. An upside
estimate bias combined with the scarcity value of being the only public company, big
data pure play on the “Internet of Things” warrants a premium valuation. Our call on
SPLK continues to be that we anticipate revenue growth to more than outpace a
gradual multiple compression so that investors can expect 15%+ gains over the next
9-12 months. Reiterate BUY.

Analyst day.

On Tuesday SPLK hosted an analyst day in conjunction with its 5th
Annual Worldwide User’s Conference in Las Vegas.
 Splunk Enterprise 6.2. From a product standpoint, news centered on the firm’s
end of October release of the latest version of its machine data analytics
platform. Highlights include: enhanced event pattern detection to make the
software more intuitive to less technical users, simplified onboarding of any
machine data, and efforts aimed at reducing total cost of ownership through
increasing concurrent user capacity and eliminating shared storage
requirements (reducing underlying infrastructure investments).
 Evolving to a segment-focused sales model. This area of continued investment
will focus on augmenting normal field reps with subject matter and industry
vertical experts – not only will this help to drive new customer adoption, but it
should also increase horizontal expansion (i.e. new use cases) within the firm’s
nearly 8,000 customer installed base.

 What’s it mean for the numbers?

An increase in ratable bookings, while tough
to predict in the near-term (~25-35% of deals, up from 10-20% at the time of
IPO), will drive improved revenue visibility over time. Longer-term, SPLK
continues to manage the business towards a 20-25% operating margin, the
timing of which will be determined by the pace of top line growth.

Avago Technologies Limited iPhone Upgrade Target price $97

AVGO : NASDAQ : US$83.47
BUY 
Target: US$97.00

COMPANY DESCRIPTION:
Avago Technologies Limited is a designer, developer and
global supplier of analog semiconductor devices. Avago
offers products in three primary target markets: wireless
communications, wired infrastructure, and industrial and
automotive electronics. Applications for Avago products
include smartphones, connected tablets, consumer
appliances, data networking and telecom equipment, and
enterprise storage and servers.

Technology — Communications Technology — Semiconductors
RAISING ESTIMATES BASED ON STRONG IPHONE 6 CONTENT SHARE AND INCREASED IPHONE 6 ESTIMATES
Investment recommendation: Based on our analysis, industry
conversations, and recent iPhone 6 teardown reports, we believe Avago has
roughly doubled its dollar content in the recently launched iPhone 6/6 Plus
smartphones versus the iPhone 5s/5c models and has the highest RF dollar
content share among the RF suppliers. With our recent surveys indicating
extremely strong demand for the new iPhone 6 products, we anticipate very
strong Q4/14 iPhone sales and high-end smartphone market share gains for
Apple versus high-tier Android OEMs, particularly Samsung. Given Avago’s
strong dollar content in the new iPhones and our recently raised iPhone
estimates, we are raising our Avago estimates. We reiterate our BUY rating
and raise our PT to $97.
Investment highlights
 Our recent surveys and analysis indicate very strong iPhone 6 demand,
and we anticipate a record iPhone 6 upgrade cycle. Please see our
separate Apple note, published Sept. 22, titled “Monthly surveys
indicate record iPhone 6 upgrade cycle, strong market share gains,” for
our updated iPhone estimates.
 We estimate the RF front-end content in the iPhone 6/6 Plus increased
to roughly $15.25-15.50 per device versus $11.25-11.50 in the iPhone
5s/5c models due to increased LTE band support and features such as
envelope tracking and carrier aggregation. Due to the increased
number of higher-frequency bands supported that require FBAR filters,
we believe Avago increased its RF dollar content to roughly $6/iPhone 6
models versus roughly $3 in the iPhone 5s/5c.
 While we believe Avago has growing dollar content in other flagship
Android smartphones such as Galaxy Note 4, Avago has stronger dollar
content share in the iPhone 6 devices given Android smartphones tend
to support more regional LTE SKUs. Therefore, we believe Avago will
benefit from strong iPhone 6/6 Plus sales despite our recently lowered
Android estimates due to share losses to the iPhone 6 products.
 Given these trends, we raise our F2014/15 Wireless business sales
estimates, resulting in our F2014/15 pro forma EPS estimates
increasing from $4.63/$6.35 to $4.65/$6.45
Valuation:

Our $97 price target (was $95) is based on shares trading at
roughly 15x our F2015 pro forma EPS estimate.

Oracle : Analyst Day Update

ORCL : NASDAQ : US$38.27

BUY 
Target: US$48.00

COMPANY DESCRIPTION:
Oracle develops, licenses and services database and
middleware software, applications software, and
hardware systems worldwide. The firm is the world’s
second largest application software firm, and a top five
systems vendor. Oracle was founded in 1977 and is
headquartered in Redwood City, CA.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Infrastructure
A MYTHBUSTER-THEMED ORACLE ANALYST DAY
Investment thesis
Our view on Oracle is simple: the company is not as troubled as the stock’s
valuation reflects. There are enough good things – new products, new
markets, new business models – coming down the pipe that we expect ORCL
shares to see a 1-2 multiple point expansion over the next year, which implies
10-20% upside from here. For a large cap stock, that is more than sufficient to
justify our BUY rating.
Investment highlights
  Oracle’s analyst day as part of its OpenWorld
User Conference. A couple hundred financial types were in the room.
 Incremental takeaways. The firm outlined and explained multiple
attributes that are better than consensus opinion – in other words, Oracle
was busting myths. The firm’s near-term ARR cloud pipeline tops $2
billion and is growing 30%+, meaningful upgrades in the firm’s core,
highly profitable database are on tap, and financial engineering in terms
of share count repurchases will remain material and fairly aggressive.
 Why the stock works. One way to make money in stocks is to buy shares
of companies on which investors soften too bearish opinions. This is the
crux of our BUY rating on ORCL. Yes, Oracle has vibrant competition, but
the firm simply is not as endangered, at least in the next year or so, as
hyperventilating cloud competitors assert. We have seen meaningful
rallies for Microsoft and HP as investor perception went from dire to at
least neutral. We believe a similar transformation awaits ORCL shares.
Valuation and price target
Our unchanged $48 price target is based on a 13x multiple applied to our
F2016 non-GAAP EPS estimate of $3.26 plus approximately $5.00 in
prospective net cash per share

BlackBerry’s Passport will win fans — but mostly among the faithful (review

Love it or hate it, you have to hand it to BlackBerry — the Passport is different.

Whether it’s a good kind of different or a bad kind of different is still being hotly debated, but at least the company that has been roundly criticized for doing a poor job of playing me-too to Apple, Samsung and others, is attempting to break free of the pack and blaze its own trail. You have to respect that.

The real question is, can we respect the Passport, with its odd, square-ish shape, heavy weight, and its unusual implementation of the physical keyboard? Perhaps. Here are the top good and bad aspects of the latest BlackBerry.

The Good

The Screen

Though it lies at the heart of the Passport’s atypical dimensions, the 1,440 x 1,440 screen is superb. Not only does it provide plenty of contrast, brightness, and off-angle visibility, its pixel density (at 453 ppi) is better than that of the iPhone 6, 6 Plus, and the Samsung Galaxy S5. It’s so good that, even though it’s a phone, you’re tempted to view the desktop version of websites (something the browser lets you choose if you want).

Unlike typical rectangular screen phones, there’s no real-estate benefit to rotating the Passport sideways because it’s a perfect square, but since the keyboard is touch-sensitive and can be used to scroll, a sideways orientation allows for scrolling without impeding your view of the screen which is a nice touch.

The Passport’s extra wide and super-high ppi screen means desktop web page design is viewable with few compromises.

 

The Speaker

BlackBerry made a big deal about the Passport’s internal speaker at the launch event, claiming it had significantly better specs than both the HTC One M8 and the Samsung Galaxy S5. There’s no doubt about it, it sounds good — really good. It’s easily the best BlackBerry speaker so far. Which is to say it’s now as good as the iPhone 5s.

 

The Keyboard

Let’s assume for the moment that you actually like physical keyboards, because if you don’t, you probably wouldn’t even consider the Passport. If you do like them, you will — with a little bit of learning curve — like the Passport’s keyboard a lot.

Its three-row layout takes some getting used to, as does the fact that extra keys appear on-screen immediately above it along with predictive word suggestions. But as with all other BlackBerry keyboards, the tactile feel is superb, as is its responsiveness.

But the part you will learn to love is the way BlackBerry has made the keyboard touch-sensitive, allowing it to respond to gestures. While typing, swipe up with your thumbs to select suggested words as they appear, or swipe to the left to delete an entire word. When on a scrollable screen, swiping up and down scrolls the content. None of this is groundbreaking — these are the same gestures BlackBerry has used on its Z10 and Z30 BB10-based devices — but it marks the first time a physical keyboard has been more than just a keyboard.


The Camera
I’ve always felt a little sorry anytime I’ve seen another parent trying to snap photos or video of their kids with a BlackBerry. I just know they’re not going to be super happy with the results. That changes with the Passport. For the first time, a BlackBerry now has a camera that is equal — and in some cases superior — to any smartphone on the market. The specs just can’t be denied: 13 megapixels, OIS (optical image stabilization), a 5-element lens, f-2.0 aperture (a full f-stop faster than even the iPhone 6 and 6 Plus), and backside illumination. Compared to the iPhone 5s, the Passport produces photos with greater detail, richer color, and better contrast.

Amazon App Store

Though it was possible to access Android apps via the Amazon App Store prior to the Passport and its 10.3 version of BB 10, it wasn’t officially supported. Now it is, and it works well. For the first time, BlackBerry users can dispense with the awkward “side-loading” technique for installing Android apps. Of course, the degree to which these apps are compatible may vary, but at least BlackBerry verifies that every app downloaded via Amazon has been checked for viruses and malware, which goes a long way to making BlackBerry users feel secure. And we know you like security!

 

BlackBerry Blend

This might just be the most exciting thing BlackBerry has produced since the original BlackBerry Bold. BlackBerry Blend is a software suite that lets you access the contents of your Passport from any PC, Mac, or tablet (iOS and Android) with a free app — a brilliant way to bring your phone’s capabilities onto a bigger screen and to provide productivity-insurance for those times when you accidentally leave your device at home or the office. Blend will let you access your Passport from anywhere in the world. You can also manage and transfer files to and from the Passport. The software isn’t bullet-proof yet, but it will be, and it’s amazing.

The Bad

The Size

Let’s just state the obvious: The Passport’s dimensions make it among the least pocket-friendly phones on the market. And while it’s steel-I-beam-inspired construction pretty much guarantees it won’t bend in your pocket, that’s not going to be much help if you can’t get it into your pocket in the first place. It’s just too wide to make it into the front pocket of most pants or jeans, and even if you were to cram it in there, its squared-off shape means that it won’t be able to shift around as you move to accommodate standing vs. sitting positions, which most rectangular phones do automatically.

Interestingly, this is the first BlackBerry I’ve ever seen that doesn’t come with some kind of holster or protective sleeve. Maybe BlackBerry figured the Passport was big enough without making it bigger still with an accessory. The bottom line is, if you don’t carry a purse, where the heck are you going to keep this thing? The inside breast pocket of a jacket seems to be the most logical choice, but how many buyers wear a jacket all of the time?

 

The Weight

If you like your devices to feel super meaty, the Passport’s curb weight of 196 grams — which is 13 percent heavier than even an iPhone 6 Plus — might be a good thing. However, given how much time we spend holding these things, I’m going to argue that lighter (all else being equal) is better.

Slim Port

So far, all of BlackBerry’s devices that have run BB 10, including the PlayBook, have come with two ports: USB (for data and charging) and Micro HDMI for video output. The Passport is the first to eschew the multi-port design for a single USB-based Slim Port. Slim Port is similar to MHL in that it can use the Micro USB port to output video via one of three adapters, but it can’t act as a device access link the way MHL does. In other words, you can’t browse the contents of your Passport via your TV’s navigation system. Slim Port certainly works as well as the cable-based solutions that attach to the iPhone’s Lightning dock connector, but MHL would have made a lot more sense.

The Keyboard

Yes, I know I put this in the “good” category, but the design is so radical that it may irritate even long-time BlackBerry users. Though the keys are well designed, backlit, and very accurate, there are only three rows, which means there are plenty of times when the OS has to supplement the physical keys with soft keys on-screen. This hybrid approach may be the logical way to preserve as much screen real estate as possible, but from a usability point of view, it’s painful – at least until you get used to it. After playing with the Passport for five days straight, I am still far from used to it.

 

Bottom Line

The Passport probably won’t win over many converts from the iPhone or Android camps, but it won’t be for lack of trying. This BlackBerry does more to address the shortcomings of previous handsets than any model so far. The size, shape, and weight will no doubt give many buyers pause, but those who take the plunge will be rewarded with the best BlackBerry experience the company has ever created.

Simon Cohen | October 2, 2014

Apple is wholly unoriginal … and that’s okay ? Here Comes Sam(sung)

Apple is set to announce a handful of new products next week that you’ve already seen elsewhere. But when it comes to Apple, that’s not a problem.

Whether it’s larger phones, a smartwatch or a new mobile payments system — all of which are rumored to be announced next week — Apple will be following the lead of other companies that already have products on the market. That’s prompting renewed criticism that the company has lost its ability to innovate following the death of former CEO and co-founder Steve Jobs.

But even if Apple isn’t the first company to make these products, its track record indicates that it still has the opportunity to reap gains by executing them better than the competition.
“Apple is not usually first to market — they typically make an existing product much better and more usable,” said Amit Daryanani, an analyst with RBC Capital Markets.

Apple is widely expected to unveil a pair of larger iPhones next week measuring 4.7 inches and 5.5 inches, up from four inches on the iPhone 5S.
Those larger phones will finally give Apple (AAPL, Tech30) some entries into the “phablet” market. That product category has been led in recent years by rival Samsung.
For Apple, the larger phones are low-hanging fruit. Customers spent over $10 billion in the company’s App Store last year, the bulk of that going to gaming apps. Bigger screens and faster processors on the new iPhones will make those games even more compelling.
As for smartwatches, Apple will be following on the heels of devices from companies like Samsung, LG and Motorola that sync with smartphones and offer features like directions and fitness tracking.
But the recent crop of smartwatches have underwhelmed reviewers and failed to present a compelling reason why they’re more convenient than simply taking your phone out of your pocket. If Apple can find a way to improve on those models — perhaps with more sophisticated health tracking or location awareness — consumers may finally have a reason to ditch their old Timexes en masse.
The opportunity is even bigger in mobile payments, where smartphone-based systems like Isis and Google (GOOGL, Tech30) Wallet have been around for years without catching on.

Apple has reportedly been working with major credit-card companies on an iPhone-based payment system. The company already has more than 800 million credit cards on file thanks to iTunes and App Store accounts, according to some estimates, giving it a massive ready customer base.
Add to that the security of the iPhone’s fingerprint identification system and Apple could finally push merchants and consumers to ditch plastic and move to smartphone-based transactions.
“To say that Apple is coming out with a product that already exists ignores the fact that there were MP3 players before the iPod and smartphones before the iPhone,” said Walter Piecyk, an analyst with BTIG. “Those products defined their categories

Having trouble with your iPhone 5 battery? You might be eligible for a free replacement.
Apple (AAPL, Tech30) said “a very small percentage” of iPhone 5 smartphones may “suddenly experience shorter battery life or need to be charged more frequently.”

Don’t get too excited just yet. After a year or two, everyone’s iPhone battery seems to carry less juice than it once did. But Apple’s repair program is limited to certain customers in the United States and China.
Only iPhone 5 smartphones sold between September 2012 and January 2013 are eligible, and only those that fall within a certain range of serial numbers. Apple has opened a website that allows people to determine whether their phones are eligible. (To access your serial number, tap Settings > General > About > Serial Number).

Investors curbed their bets on Apple on Wednesday.

One possible reason: They got a reminder that the company won’t have a free run at the market this fall even with the release of the hotly anticipated iPhone 6 and supposed iWatch.

Apple’s shares fell 4.2%, having hit an all-time closing high of $103.30 on Tuesday. The drop coincided with rival Samsung’s event at the IFA show in Germany, where it previewed new versions of its Galaxy

Apple Inc. (AAPL)-Nasdaq
Prev Close: 103.30
Open: 103.20
Bid: 98.79 x 100
Ask: 98.82 x 100
1y Target Est: 106.83
Beta: 0.83
Earnings Date: Oct 27 – Oct 31 (Est.)
Day’s Range: 98.58 – 103.20
52wk Range: 63.89 – 103.74
Volume: 125,424,577
Avg Vol (3m): 49,884,300
Market Cap: 592.44B
P/E (ttm): 16.60
EPS (ttm): 5.96
Div & Yield: 1.88 (2.00%

iShares SouthKorea ETF (EWY : NYSE : US$65.27), Net Change: -0.13, % Change: -0.20%, Volume: 1,332,424
Arms race?

Samsung unveiled new versions of its Galaxy Note smartphone on Wednesday, featuring a crisper, 5.7-inch display edition version of the Note with a curved edge screen on one of the phone’s sides, helping users to stay focused on their main screen without having to respond to calendar reminders or incoming emails.

It also demonstrated a Virtual Reality headset that on version of the Note with a curved edge screen on one of the phone’s sides, helping users to stay focused on their main screen without having to respond to calendar reminders or incoming emails.

. The launch comes just less than a week before Apple’s September 9 event where Apple is expected to roll out a 4.7- and 5.5-inch iPhone 6 as well as a possible iWatch device. Last week, Samsung said it would begin selling a stand-alone wristwatch, the Samsung Gear S, which will be able to make and receive calls without having to be tethered to a smartphone. Apple is also expected to join forces with credit card companies to provide a mobile payment option for the iPhone 6 and iOS 8.

Halogen Software Inc.

HGN : TSX : C$8.84 BUY 
Target: C$15.00
COMPANY DESCRIPTION:
Halogen Software is a provider of Software-as-a-Service
Human Resources and Talent Management tools for
small and medium sized companies. The company’s tools
simplify performance appraisal, recruitment,
compensation management, succession planning and
more. Halogen Software is headquartered in Ottawa
Canada with ~300 employees.
All amounts in C$ unless otherwise noted.

Technology — Enterprise Software — Software as a Service
DECENT QUARTER AND GUIDE
Investment recommendation
Halogen reported in-line Q2/14 revenue driven by strong international growth
and record recurring revenue, and provided a slightly soft Q3 outlook. Halogen
has revised its 2014 guidance down slightly, reflecting the removal of perpetual
license revenue from its forecast. Customer retention and dollar retention
remained at ~90% and 100%+, respectively, flat with the previous quarter. We
continue to believe Halogen is a leader in the mid-market with strong products,
experienced management and leading customer satisfaction, further reinforced
by the Halogen’s impressive repeat performance in the 2014 Gartner Magic
Quadrant for Talent Management. We reiterate our BUY rating but our target
goes to C$15.00 (from C$16.50) based on 4.0x (from 4.5x) NTM EV/Sales
reflecting lower trading multiples among peers.
Investment highlights
 In-line Q2 – Revenue was $13.6M (up 19% YoY), in line with our and
consensus estimates. Recurring revenue continued to outpace overall
revenue, growing 21% YoY to a record $12.3M. Adj. EPS was a loss of $0.12,
a penny below our and consensus estimates.
 Slightly soft Q3 outlook – For Q3/14, Halogen expects total revenue of $14.4-
14.6M, versus our estimate of $14.8M and consensus of $14.5M. Recurring
revenue guidance is $12.7-12.9M, compared with our forecast of $13.0M.
 2014 outlook revised – Given no perpetual license revenue expected for the
rest of 2014, Halogen tightened its 2014 revenue guidance to $56.5-56.9M
(from $56.8-57.8M, reflecting no perpetual license) with recurring revenue
of $50.5-50.9M (from $50.3-51.3M), versus our $51.2M estimate.
Valuation
Halogen’s current valuation of 1.8x C2015E EV/Sales lags larger HCM SaaS
vendors at 7.1x and small/mid cap SaaS vendors at 3.6x. Halogen software,
despite lowered retention at 90% churn, remains a high growth recurring
revenue business with a strong product for a large and untapped market with few
direct competitors

Opower BUY

OPWR : NYSE : US$17.29

BUY 
Target: US$23.00

COMPANY DESCRIPTION:
Opower combines big data analytics and behavior science to
provide utilities around the world with cloud-based software
solutions for customer engagement, energy efficiency, and
demand response. The firm was founded in 2007, is
headquartered in Arlington, VA, and trades on the NYSE under the
ticker “OPWR”.

All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Software as a Service
FIRST STEP ON WHAT SHOULD BE A LONG RUNWAY; REITERATE BUY,
TRIMMING TARGET TO $23
Investment thesis
Opower posted a good start as a public company with greater upsides than we
expected. The firm’s growth spending should pay off in terms of a long-term
upward margin ramp beginning in early 2015. Meanwhile, in our opinion the
firm remains the definitive leader in consumer oriented energy efficiency and
energy data analytics space. The stock has the potential to deliver significant
returns over the long-run. Reiterate BUY.
 An upside out of the gate. OPWR reported total revenues and Adjusted
EBITDA of $28.6M and ($4.3), which were respectively $2.4M and $3.6M
ahead of our estimates. Revenue growth was 50% in the quarter. Calculated
billings of $34.2M were nicely ahead of our $31.6M estimate and up 17%
year-over-year versus a very difficult compare. Cash from operations was a
($2.1M) loss, which was better than our ($4.4M) estimate.
 Color from the call. Opower signed a deal with TEPCO in the quarter, which
is Japan’s largest utility (20M households) and the firm’s first major win in
the region. Sales hiring has accelerated to meet C2014 targets, and
management is pleased with the pace and early productivity of new
additions. Recurring revenue loss due to non-renewals has been <5% every
year since inception, which speaks the firm’s high level of visibility.
 Outlook: C2014 guidance well ahead of expectations. OPWR provided
guidance for the first time, setting mid-point C2014 revenue and EBITDA
targets that were respectively $5M and $2M better than our estimates. We
now expect the firm to grow revenues ~33% this year, which is up from our
pervious 27% estimate, and report EBITDA losses that are in the mid-20%’s
as a percent of sales – we believe there is still likely ups on both metrics.

Benefitfocus

BNFT 

NASDAQ : US$68.44 
BUY  Target: US$84.00

COMPANY DESCRIPTION: Benefitfocus sells a cloud-based benefits software platform for large employers and insurance carriers. The firm’s suite of solutions enables customers to more efficiently shop, enroll, manage, and exchange benefits information. Based in Charleston, SC, Benefitfocus was founded in 2000 and went public in September, 2013.
All amounts in US$ unless otherwise noted.
Technology — Enterprise Software — Software as a Service AN UPSIDE QUARTER; 2014 WILL BE RIGHTLY HEAVY ON INVESTMENT IN LIGHT OF OPPORTUNTIY; REITERATE BUY
A favorable mix shift towards the faster growing Employer business and an uptick in demand from Carriers around private exchanges could enable BNFT’s revenue growth rate to accelerate by a couple hundred basis points in each of the next 2-3 years. If we are correct, the natural, and eventual compression of the firm’s EV/revenue multiple of 12x 2014E will be both gradual and more than offset by high-20’s organic revenue growth. We continue to expect BNFT’s stock to advance faster than the overall stock market. Reiterate BUY.
 Preliminary Q4/13 results ahead of expectations. BNFT expects to report Q4 total revenue and Adjusted EBITDA loss of $30.3M and ($7.9M), which were respectively $1.8M and $0.4 better than our forecasts. Total revenues increased 36% y-o-y, and within the mix, Employer revenues increased 80% y-o-y and now make up 44% of revenue.
 Color on deal flow. BNFT added 14 new employer customers in the quarter, bringing the firm’s total to 393, up from 286 a year ago – we’d remind investors that the second and third quarters tend to be seasonally stronger as a result of the timing of open enrollment season. The firm saw particular strength with Carriers, adding 3 new accounts in the quarter, as those firms look to setup private exchanges. Q4 was a company record in terms of customer “go-lives.”
 C2014 investment initiatives. Management highlighted three areas of focus: (1) an increase in sales capacity to really put the foot on the gas in the hot Employer market; (2) an incremental $10M investment in their private exchange efforts for Carriers and brokers; and (3) the build out of a third-party channel for implementation services – the firm is already in discussions with multiple potential partners. The result of the initiatives will be a roughly $20M larger EBITDA loss in C2014 than we had previously forecast. As we are undoubtedly in the very early stages of this opportunity, we believe this is a logical strategy. Our C2014 and C2105 revenue estimates increase by $2.5M and $4.0MTechnology

Veeva Systems BUY

VEEV :

NYSE : US$37.80 
BUY  Target: US$48.00

COMPANY DESCRIPTION:

Veeva provides industry-specific, cloud-based software to the life sciences industry. The firm’s solutions include: Veeva CRM for customer relationship management; Veeva Vault, a cloud-based content management and collaboration solution; and Veeva Network for the creation and maintenance of healthcare provider and organization master data. The firm was founded in 2007 and is headquartered in Pleasanton, CA. All amounts in US$ unless otherwise

Technology — Enterprise Software — Software as a Service

GOOD FIRST STEP, A “NO DRAMA” QUARTER. STILL OUR FAVORITE MID- MAJOR GROWTH NAME. BUY.
Veeva delivered a trifecta tonight: 1) a meaningful, across the board, quarterly upside, 2) an above consensus outlook for F2015, and 3) an unexpected extension of its relationship with Salesforce through 2025. We expect continued strong fundamental execution in F2015 and beyond to enable VEEV’s revenue growth to more than offset an orderly, and likely elongated, compression in the firm’s valuation multiples. The result, in our opinion, will be a stock price that meaningfully outperforms the overall stock market. We reiterate our BUY rating.
 Excellent quarter: another solid upside. Veeva reported revenues and non-GAAP EPS of $62.8M (+58% y-o-y) and $0.07, which were respectively $5.1M and a penny ahead of our estimates. Subscription revenues grew 89% in the quarter and made up 73% of the revenue mix. Calculated billings of $76.7M were up 56% in the quarter and easily topped our $64.3M estimate. VEEV generated FCF of $15.8M, up 135% y-o-y and $7.5M better than we had forecast.
 Color from the call. Veeva added 10 new Vault customers in the quarter, including the firm’s first ever 7-figure deal with this product. The firm ended the year with 198 total customers – including 147 in CRM, 69 Vault, and 6 Network. The firm noted FQ4 revenue retention of 166%. Lastly, Veeva extended its platform partnership with CRM for an additional 10 years – at more or less the same terms from a margin perspective – which should ease investor concerns with regard to any prospective changes in this relationship.
Outlook: revenue estimates inch up, likely a conservative cut. Management provided FQ1 and F2015 revenue guidance that at mid-points were roughly $3.0 and $4.5M ahead of our respective estimates. The firm plans to continue to invest for growth, which will drive modest margin compression in F2016 – we’re forecasting a still impressive ~20% operating margin. We believe there is upside to our revised, high-end of the range forecasts.

 

Workday BUY

WDAY : NYSE : US$100.28 
BUY  Target:  $ 115

UCOMPANY DESCRIPTION:

Workday provides enterprise-scale, cloud applications that deliver the core functions for global customers to manage the human capital and financial resources of an organization. Solutions include: HCM, Financial Management, Payroll, Time Tracking, Procurement, Employee Expense Management, etc. Workday was founded by the former founders of PeopleSoft in 2005 and is headquartered in Pleasanton, CA.S$115.00

Technology — Enterprise Software — Software as a Service STRONG QUARTER AND CONTINUED INVESTMENT. BUY, TARGET TO $115.
Workday’s continued business momentum and upwardly revised outlook were strong enough to keep investors’ “eyes on the prize” – which in this case, is about becoming a multi-billion revenue cloud-based replacement of incumbent applications from Oracle, SAP and the high end accounts of the largely PE funded firms like Infor, etc. It would be too aggressive to forecast that WDAY’s share price will generate 2x the return of the stock market, but it seems reasonable that 56% compound revenue growth from C2013 to C2015E will more than offset a nearly certain degradation of the firm’s 22x forward EV/revenue multiple. We would own at least a small position in this stock. BUY.
 The track record remains perfect: another big upside. Workday reported revenues, calculated billings, and FCF of $141.9M (+74%), $203.7M (+78%) and $7.5M, which were respectively $3.9M, $29.5M, and $31.2M ahead of our estimates. Subscription revenues grew 86% in the quarter, and non- GAAP EPS loss of ($0.13) was $0.02 better than we expected.
 Color from the call. Customer momentum continues as the firm added roughly 50 customers in the quarter (bringing the total to ~600), including the second straight quarter of “double digit” Financials additions. WDAY also recently acquired Identified, a small technology tuck-in that will add predictive analytics and machine learning capabilities to the firm’s apps.
Outlook: revenues move higher on bookings strength, F2015 operating losses in the mid-teens as WDAY continues to invest for growth. We have increased our F2015 and F2016 revenue estimates by $35M and $60M respectively, which now implies 56% and 42% growth in the next two years. F2015 calculated billings growth is expect to come in at ~45%, which is up from our previous 43% estimate. We have slightly increased our assumed operating losses in F2016 and expect WDAY to be FCF positive in F2017.

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