Tech Industry Analysis

Convio (CNVO) gets acquired by Blackbaud (BLKB) for $16/share - MGI Analyst Blog

Convio (CNVO) gets acquired by Blackbaud (BLKB) for $16/share - MGI Analyst Blog.

New Research: MGI Scorecard - Large Systems Vendors Oct 2011

New research published: "Large Systems Vendors Scorecard: October 2011"  @mgiresearch #IBM, #CSCO, #ORCL, #EMC, #Dell, #HPQ, #VMW, #BRCD, #NTAP, #JNPR

Our current, October 2011 vendor scorecard provides a qualitative rating for large systems vendors such as Hewlett-Packard, Oracle, Dell, IBM, EMC and Cisco. The note contrasts these ratings with quantitative MGI Index scores measuring business model efficiency and with growth and valuation parameters. The recent upheaval at HP provides an interesting backdrop to our rating scores. With a drop in HP stock, a number of analysts and investors have been turning positive on the company. We think that such enthusiasm is a bit premature. HP’s stock is cheap for a reason. In a related research note: “Who Benefits from HP Disarray?” we analyze the opportunities and threats for HP and its peer group.

Other recent MGI Research reports include:

Is Manhattan Associates an Acquisition Target?

Getting the Right IT Deal: A 20 Questions Interview with a leading IT contracts guru

CIO Critical Success Factors: Conversation with Martha Heller, a noted CIO recruiter

 Visit www.mgiresearch.com for additional information. To schedule analyst appointments, call +1 (888) 801-3644

New Research: Who Benefits from Disarray at HP?

New research published: "Who Benefits from the Disarray at HP?"

@mgiresearch #HPQ, #Dell, #IBM, #ORCL, #EMC, #VMW, #CSCO #Cloud

HP customers, investors and business partners are beginning to feel like they are stuck in a bad remake of the movie "Groundhog Day". In the film, Bill Murray's character is stuck in time and keeps waking up to face the very same day, with the same challenges and problems.

Three of the last HP CEOs were forced out under some sort of a cloud (not the computing kind). After expelling Carly, Mark and Leo (these sound like hurricane names), the board rushed to hire Meg Whitman as CEO and appointed Ray Lane as the executive Chairman. The new team has a big mess to clean up.  The Personal Systems division decision is likely to be reversed. The idea to get out of the PC business was probably not a bad one, but HP is totally unprepared for such a non-linear move. The Autonomy deal will likely go forward, but the acquisition better work, - HP has had a terrible track record of absorbing companies. The EDS purchase caused serious indigestion, and HP inherited a number of contractual issues with it. The list of HP acquisition orphans is long and unmemorable (except for high purchase prices).

In the meantime, competitors are circling the weakened HP turf. We believe, the company still has some time and room for maneuver, but a recovery will require signs of sure-footed, thoughtful, strategic decisions, - so far we have not seen any evidence of that, but one can hope...

In the new research report on HP, we dissect HP's current situation, assess chances for a sustained recovery and risks of market share loss to competitors in key areas such as processors, storage, software and services. 

Other recent MGI Research reports include:

Is Manhattan Associates an Acquisition Target?

Getting the Right IT Deal: A 20 Questions Interview with a leading IT contracts guru

CIO Critical Success Factors: Conversation with Martha Heller, a noted CIO recruiter

 Visit www.mgiresearch.com for additional information.

New Research: Is Manhattan Associates an Acquisition Target?

New research report: Is Manhattan Associates an Acquisition Target? @mgiresearch #MANH

Despite the huge cash hoard sitting on software companies balance sheets, perennial predictions of a massive wave of 2011 industry consolidation have not materialized. SaaS company mergers are few and far between while enterprise software companies have been cautious to avoid any non-accretive deals. We believe that amongst several possible industry merger transactions, Manhattan Associates, a provider of supply chain execution software is now themost likely acquisition target. Among the short-list of potential acquirers are SAP, Oracle, Infor, and JDA Software as well as a few private equity firms. 

New Research: Three Key Trends Shaping Cloud Computing

In a new research report "Three Key Trends Shaping Cloud Computing" we examine both the drivers as well as the barriers to cloud computing adoption. Several recent cyber security incidents spotlighted Cloud Computing vulnerabilities, generating questions about the durability of the overall adoption trend for the Cloud. The focus of the report is on the current intersection of cloud strategies of LOB users, central IT and cloud vendors and how pragmatic economic and technological factors are shaping their decisions with regard to Cloud adoption. We expect the pace of adoption for cloud computing to accelerate. The recent shift from confrontation to collaboration between central IT and the cloud providers, signals a removal of a significant road-block to cloud adoption. The focus of internal IT on virtualization first has now come into question as more users are looking at pursuing both mega-trends but not at the same speed and not for the same portions of their applications portfolio. The challenges posed by cloud security and management issues are serious, but are not the insurmountable barriers to broader adoption of cloud computing. Both the cloud as well as virtualization are driving a redefinition of the requirements landscape for security and management tools. This disruption creates a growth opportunity for cloud start-ups and a challenge for incumbent vendors of software and security tools such as CA, BMC, HPQ and IBM. We expect the re-acceleration in this space to benefit RAX, AMZN, CRM, CNQR, TLEO, KNXA, as well as the cybersecurity vendor group. This report is a must read for anyone interested in gaining an in-depth insight of the current business and technical trends that are shaping the opportunity for cloud computing.

 

Apple's iCloud Grabs Consumer and SMB Productivity Cloud

We believe Apple's iCloud product could be a game changer. iCloud fires a shot across the bow directed squarely at Microsoft's Office365, and Google's Small Business Apps cloud productivity offerings because iCloud provides a near frictionaless adoption path for Apple iOS device customers. It is quite likely that the iCloud announcement serves notice to investors in highly visible upstarts  Dropbox, Surgarsync, Evernote and others that their free ride is over.

Amongst the raft of features announced by Apple at the Worldwide Developers Conference in San Francisco, the announcement of iCloud was in our view the most significant. It is also the one announcement that got somewhat lost in press coverage as the iTunes in the cloud music sharing service overshadowed what is in our view a real game-changer for the personal and groupware productivity solutions markets. iCloud, in our view, is the first cloud solution from a major vendor that has a clear brand identity; an understandable, compelling offer; and is likely to re-shape multiple markets in the next twelve months.   

Apple did away with its much maligned MobileMe service that provided a virtual folder capability and email for $99/year. In its place, Apple announced iCloud, -a cloud-based service with a robust, integrated and mostly free set of personal productivity apps (Mail, Contacts, document and file sharing, etc. ) that provides email, storage, and PUSH-based synchronization capability for iWork documents. Apple will provide each user with a 5GB free storage and is making its storage APIs available to developers prior to the product go-live date in this fall. The new, reworked apps represent a rather complete set of personal productivity and small office tools that allow for sharing of contacts, calendars, and files using a relatively seamless and familiar interface. The suite is AD-free.

From here on, any individual professional or a small business or a group can easily and freely establish a cloud-based, shared and synchronized office environment. This is a direct shot at Google Docs as well as at Microsoft. With the simple announcement of iCloud as a free productivity solution, Apple has quickly outpaced Microsoft and Google, both of whom have been trying now for a few years to carve out a viable productivity cloud strategy and are now forced to play catch up. Initially, iCloud will make things more difficult for Google than for Microsoft Live offering, but the speed with which Apple entered and established itself in the cloud space is a clear warning sign for Microsoft. We are not ready yet to write the Microsoft Office and Exchange obituaries, - large companies will continue to rely on these mature products. Apple still has a long way to go to make iCloud appealing to enterprises and there is no indication that they have any interest in this market. Moreover, Apple, (and Google), does not offer the management tools needed by enterprises to deploy and administer large groups of users, but clearly Apple is not that far away from being able to do so, given that similar technology underpins much of what is iCloud internally. Microsoft, Google, RIM, and all the third-party hosted email providers should all take note.

Security is an additional issue as the PUSH nature of iCloud and similar products can make them the distribution mechanisms for infected code. Given the recent spate of highly visible security breaches at various tech companies and consumer businesses, anyone looking to deploy an office solution based in the cloud is going to want to get additional assurances of tight security monitoring as well as evidence of tools, process and staff to combat any emerging security threats. 

For individuals and small businesses, iCloud makes it very difficult to justify paying a lot of money for personal productivity applications, email, and storage. Overnight, Apple has established itself and the iCloud brand as the dominant consumer and personal productivity cloud offering. 

June 10th 2011. (c)2011 MGI Research, LLC.

New Research Report: Is #RIM Done?

Analysts are of two distinct minds on Research in Motion (RIM) - one is that RIM is done, another - that current problems are temporary and that RIM stock is a screaming buy.

RIM (NASDAQ:RIMM, MGI Index= 2,396) shares continue to be under pressure, while Apple, (NASDAQ:AAPL, MGI Index =8,327), continues to gain market share in what used to be RIM's core marketplace - the enterprise. Apple's iPhone has become the new "CrackBerry" and apps have become the new currency of the mobile computing world.

We believe the key questions are the ones of relevance and leadership:

• Can RIM retain a meaningful leadership position in the new mobile computing landscape?  
• Does the company have a realistic vision of the overall mobile opportunity? 

A new, in-depth, MGI Research report - Is RIM Done? analyzes RIM stock scenarios by going deep into RIM's strengths, weaknesses, opportunities and threats. The report examines RIM's operating and R&D efficiency relative to its peers and explores RIM's strategic options.

Available immediately to MGI Research subscribers at the MGI Research website, a single copy can be purchased from the MGI Research Store or via Bloomberg.

Key issues covered:
- Can RIM defend its position in the consumer markets and successfully penetrate the tablet space? 
- Will RIM become a niche provider of mobile access solutions for secure enterprise-class e-mail? 
- Will RIM be forced to redesign the PlayBook tablet?
- Will apps developers write code for RIM product?
- What are RIM's real strengths?
- What interesting new markets are open to RIM? 
- How long will the recovery process take? 
- Do the RIM board and current management team have the right combination of skills to translate the vision into action?

The report was written by the MGI Research analyst team in collaboration with the leading mobile computing expert and industry analyst Bob Egan of the Sepharim Group, LLC.  Many of us at MGI have in the past worked with Bob at Gartner and we are delighted to be able to collaborate with him again. 

 

 

SaaS vs Enterprise Software Valuations - What Price is Right

Having survived the Great Recession, the Software-as-a-Service (SaaS) business model is entering the realm of mainstream IT buyers. SaaS has become the model of choice for most new software ventures. As we predicted in late 2007, valuation multiples of public SaaS companies declined to near parity with valuation multiples of traditional enterprise software (on-premise) firms during the economic crisis of 2008 and early 2009. In the past 18 months this convergence was broken as equities of SaaS companies rocketed forward with an average appreciation of over 44% during the past 52 weeks and some firms showing triple digit percentage gains. Several SaaS firms now sport Ev/Sales multiples of 11X revenue and greater. Taking a checkpoint on the SaaS scenario for the next 52 weeks and beyond, we believe there are several key questions worth examining: 

• Are the current SaaS valuation multiples sustainable? Are SaaS companies overvalued? If so, which ones? Are any SaaS companies undervalued?
• What is the right valuation methodology for a SaaS company?
• Are enterprise software companies closing the valuation gap or are they destined to permanently trail behind?
• Will SaaS companies close the profitability gap relative to enterprise software, or is the SaaS business model inherently less efficient?
• What drives valuation of software companies (SaaS and enterprise software alike) today?

In a recent research report: "SaaS Valuation: What Price is Right?" we analyzed valuation and operating performance parameters of 103 publicly listed software companies, of which 19 can be classified as SaaS companies (and a few more would lay claim to being SaaS). We tallied the performance, operating efficiency and valuation drivers, and found some surprising results.

SaaS companies continue to hold a valuation premium to enterprise software companies. This gap has been driven by SaaS growth characteristics. However, enterprise software companies are presently closing the short-term growth gap. One could attribute this to a post-recessionary bounce or anything else, but the short term growth of enterprise software companies is now within striking distance of many SaaS firms. Despite narrowing the gap in growth, the valuation gap remains as wide as the Amazon during the rainy season. As of March 9, 2011, the average SaaS company commanded a Price/Sales multiple of 5.45, up from 3.15X in mid 2009.  In comparison, the average Price/Sales multiple for enterprise software firms rose from 2.84X to 3.97X. SaaS revenue multiples rose by 73% from mid-2009, while enterprise software multiples rose by about 43% during the same period.

The single biggest driver of valuation multiples for SaaS companies appears to be revenue growth. Company size continues to matter for SaaS companies as larger cap SaaS names outperformed their smaller rivals. Profitability, efficiency and cash flow are mostly ignored by SaaS investors, at least for now. Given the SaaS growth profile, this may be fine, - as long as markets continue looking the other way and interest rates are low. Yet, lack of efficiency is typically something that stays with companies and is often part of the corporate DNA.  To put it mildly, it will be pretty tough to change it if the economic environment sours or investor scrutiny sharpens.

Operating profitability of SaaS companies continues to lag. Given the impressive growth of SaaS firms, investor concerns, if they do exist, are seemingly taking a back seat to the argument for investing in growth and taking market share. Given the nascent nature and low adoption rates of SaaS, this idea still has legs. One could argue that SaaS companies do not become a meaningful business until they reach $500Mil in revenue and are till then, for all intents and purposes, publicly trading venture stage companies. Theory aside, history of the software industry shows time and again that delivering profitable growth is a management discipline learned at a young age. Businesses that eschew profits for maximum growth are often unable to deliver consistent profitability. Whether it is a management discipline problem or a business model flaw is difficult to determine, and beside the point for shareholders. There is no real reason why a $200 million software company cannot grow the top line 30% or more and also deliver a modest level of profitability.

In assessing all the data, it appears that relative to historical performance norms, valuation multiples for all software equities are stretched and look vulnerable in the short to mid-term, especially if Q1 2011 numbers and/or guidance come in light.  Some of the higher multiple, low MGI-score SaaS equities like SuccessFactors and others, could be particularly effected by an investor pullback.  At present, there appears to be little room for error in managing these high-growth, high multiple companies. We estimate that barring any exogenous negative events, SaaS companies have about nine to twelve months to get their act together with regard to profitabilty. In twelve months or less, we will likely see a fresh crop of social media companies with explosive growth coming public - companies like Groupon, Facebook, and Twitter. When they do, the high multiple torch and attendant investor interest will pass from SaaS names to the new investor favorites. 

For content of the full research report on SaaS Valuation, visit our website. 

 

 

Breakthrough Analysis of SaaS and Enterprise Software Valuations Released

Are SaaS Valuations Sustainable? MGI Research Announces Breakthrough SaaS Valuation Report

March 22nd, 2011 - San Francisco, CA - Today MGI Research LLC announced the latest update to its widely popular "SaaS Valuation - What Price is Right?" research report. With data on more than 100 SaaS and Enterprise Software companies, this in-depth analysis addresses many of the questions facing technology executives, investors, and entrepreneurs. 

"The question is - are we at the peak of inflated expectations for SaaS or are we in in the very early stages of what can be potentially a $50Bil+ market?" said Igor Stenmark, Managing Director of MGI Research. "Software-as-a-Service (SaaS) has become the dominant deployment architecture and business model for software, and valuation multiples of SaaS companies are near all-time highs. Yet, our field research shows that production adoption of SaaS solutions amongst large organizations still represents only a small fraction of their application portfolio." he continued.

The new MGI Research report provides an in-depth analysis of what drives valuation multiples and market performance for SaaS companies and provides a simple formula for estiamting valuation of SaaS companies. The report examines the following key questions:

• How do SaaS and Enterprise Software firms compare in terms of valuation and performance?
• What is the valuation outlook for SaaS companies?
• Should SaaS companies be focused on growth or profitability?
• Does size matter for SaaS valuation?
• Are current SaaS valuation multiples sustainable?
• Which companies and segments of the SaaS sector are under/over valued, and why?

The report contains data on  software firms such as Salesforce, SuccessFactors, Taleo, Concur, Intuit, and many others.

This research report is available immediately to MGI Research subscribers. Individual copies may be purchased in the MGI Research Store. For additional information, visit www.mgiresearch.com

About MGI Research LLC

MGI Research specializes in quantitative research and benchmark data and provides clients with confidential, partner-only strategic advisory services. Founded in 2008, MGI Research counts some of the largest and smallest tech companies, institutional investors, and Fortune 500 CIOs among its clientele. 

Contact: 

Andrew Dailey, Managing Director, MGI Research, LLC

O +1 415 381-1042 
M +1 415 419-6253 
adailey@mgiresearch.com

This research report contains data on the following companies:

ACI WORLDWIDE, INC. ADOBE SYSTEMS INCORPORATED AUTODESK, INC. ADVENT SOFTWARE, INC., ANSYS, INC., Ariba, Inc., Asiainfo-Linkage, Inc., ATHENAHEALTH, INC., ASPEN TECHNOLOGY, INC., BLACKBOARD INC., ACTUATE CORPORATION, BLACKBAUD, INC., BMC SOFTWARE, INC., BSQUARE CORPORATION, BROADVISION, INC., CA, INC., CALLIDUS SOFTWARE INC., CADENCE DESIGN SYSTEMS, INC., CERNER CORPORATION, CLICKSOFTWARE TECHNOLOGIES LTD., CONCUR TECHNOLOGIES, INC., CONVIO, INC., COMPUWARE CORPORATION, SALESFORCE.COM, INC., CSG SYSTEMS INTERNATIONAL, INC., Constellation Software Inc., CONSTANT CONTACT, INC., CITRIX SYSTEMS, INC., COMMVAULT SYSTEMS, INC., DEMANDTEC, INC., DIGIMARC CORPORATION, Amdocs Limited, BOTTOMLINE TECHNOLOGIES (DE), INC., EPICOR SOFTWARE CORPORATION, SOURCEFIRE, INC. FORTINET, INC., GUIDANCE SOFTWARE, INC., HEALTHSTREAM, INC., INTRALINKS HOLDINGS, INC., INFORMATICA CORPORATION, INTERACTIVE INTELLIGENCE, INC., INTUIT INC., JDA SOFTWARE GROUP, INC., KENEXA CORPORATION, MAGMA DESIGN AUTOMATION, INC., LIVEPERSON, INC., LAWSON SOFTWARE, INC., MANHATTAN ASSOCIATES, INC., MEDASSETS, INC., MEDIWARE INFORMATION SYSTEMS, INC., MENTOR GRAPHICS CORPORATION, Merge Healthcare Incorporated, MICROSOFT CORPORATION, MICROSTRATEGY INCORPORATED, NETSUITE INC., NOVELL, INC., NETSCOUT SYSTEMS, INC., NUANCE COMMUNICATIONS, INC., OPNET TECHNOLOGIES, INC., OPENWAVE SYSTEMS INC., ORACLE CORPORATION, OPEN TEXT CORPORATION, PDF SOLUTIONS, INC., PARAMETRIC TECHNOLOGY CORPORATION, PROGRESS SOFTWARE CORPORATION, PROS HOLDINGS, INC., DELTEK, INC., PERVASIVE SOFTWARE INC., QLIK TECHNOLOGIES INC., QUEST SOFTWARE, INC., QUALITY SYSTEMS, INC., RADIANT SYSTEMS, INC., RED HAT, INC., RENAISSANCE LEARNING, INC., RIGHTNOW TECHNOLOGIES, INC., RADISYS CORPORATION, SABA SOFTWARE, INC., SAP AG, SCIENTIFIC LEARNING CORPORATION, SOUNDBITE COMMUNICATIONS, INC., SUCCESSFACTORS, INC., SMITH MICRO SOFTWARE, INC., SYNCHRONOSS TECHNOLOGIES, INC., SYNOPSYS, INC., SUPPORT.COM, INC., SPS COMMERCE, INC., SciQuest, Inc., SRS LABS, INC., SS&C TECHNOLOGIES HOLDINGS, INC., SOLARWINDS, INC., SXC Health Solutions Corp., SYMANTEC CORPORATION, TALEO CORPORATION, TELENAV, INC., DEALERTRACK HOLDINGS, INC., MONOTYPE IMAGING HOLDINGS INC., THE ULTIMATE SOFTWARE GROUP, INC., VASCO DATA SECURITY INTERNATIONAL, INC., VMWARE, INC., VOCUS, INC., Vital Images, Inc., XATA Corporation, ZIX CORPORATION

 

MGI Research, MGI Index, MGI-X, and MGI-Change Vector are trademarks of MGI Research LLC. All other company and product names may be trademarks of the respective companies with which they are associated. This is not an offer to buy or sell securities. All information is provided on a strictly AS-IS basis.

New Research Report - "Cloud Computing: A Definition" http://bit.ly/gTha6B
Separate cloud computing facts from fiction. Get insight into new opportunities in the emerging cloud computing landscape.