SuccessFactors (SFSF) Viewed As Dream Stock For Investing In The Cloud Computing Space; BizX Chief Reason
March 9, 2010 - The Wall Street Transcript has just published Business & Application Software Report offering a timely review of the Multimedia Software sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Brad Whitt joined Broadpoint.AmTech's equity research group in September 2007 as a Senior Analyst covering the software technology sector. Broadpoint later acquired AmTech in October 2008. Previously, Mr. Whitt was with RBC Capital Markets, where he was a Senior Analyst covering the enterprise software sector, with an emphasis on software-as a-service companies.
He also served as a Senior Analyst covering the health care software sector, later transitioning to the enterprise software sector at Morgan Keegan & Company, Inc. Mr. Whitt also held various sales positions at IDX Systems Corporation, Datamedic Corp. and DataFlow Corp. Mr. Whitt holds a B.S. in business administration from Appalachian State University and an MBA from Wake Forest University's Babcock Graduate School of Management.
TWST: How big is cloud computing at this point, and how big is it likely to get?
Mr. Whitt: It depends on how you define "cloud computing." Earlier we defined the three major components: applications, which include the SaaS providers; infrastructure, which includes the hosting providers; and the platform providers, like Force.com from Salesforce.com. Also if you included the networking and hardware infrastructure required to deliver cloud computing, the total market is enormous and growing quite fast. It's probably too early to completely define cloud computing and accurately predict the size of the market. We believe cloud computing will evolve over time, and we anticipate both private and public clouds.
We believe virtualization technology is also a key component of cloud computing. We also project open-source technology will work well in the cloud, and we believe Red Hat (RHT) is an attractive derivative play on cloud computing, with their open-source Linux operating system. We envision Linux will be the operating system of choice for many private and public clouds. We also like Red Hat's other open-source technologies, including JBoss as an application server, and the recently introduced server virtualization applications based on the open-source hypervisor, KVM.
TWST: You mentioned Salesforce.com. Are there smaller players investors should look at as well?
Mr. Whitt: Yes, we mentioned Red Hat, which helps address the infrastructure aspect of cloud computing with their Linux operating system and other open-source technologies. We like Red Hat's open-source business model, which functions well in the cloud computing environment. We also like some of the smaller software-as-a-service providers. SuccessFactors (SFSF) we think has a very attractive product cycle with BizX, which stands for Business Execution. The BizX application suite was introduced in late 2009, and we see tremendous momentum with these HR-related applications. So Red Hat and SuccessFactors are two of our favorite investment ideas in cloud computing. There are a couple other software trends that are interesting to track as we move through 2010. The corporate desktop is an interesting theme, particularly with the Windows 7 refresh.
TWST: What should investors be doing in this space at this point?
Mr. Whitt: We continue to like the software-as-a-service sector due to the visibility from the subscription revenue models and the value proposition for customers. We believe SaaS will continue to flourish as a preferred delivery method for software. We previously highlighted Salesforce.com and SuccessFactors. As a smaller-cap idea, we like LivePerson (LPSN), a leading provider of online chat solutions. LivePerson executed extremely well in the second half of 2009, posting some of the best growth and margins in the SaaS sector. There are several exciting product cycles that we encourage investors to get in front of early in 2010. Citrix recently launched a XenDesktop 4 trade-up program that we believe will be a major catalyst for new business.
With the focus on corporate desktops, we also view Citrix as a good derivative play on the Win-7 refresh cycle. We already highlighted SuccessFactors and the BizX product cycle. SuccessFactors' billings accelerated the last two quarters of 2009, and we believe this momentum will continue throughout 2010. Another very exciting product cycle is occurring at Informatica (INFA). Informatica has a major new product launch, Informatica 9, that will likely be a catalyst for new business for several years. Informatica posted impressive December quarter results, and we see tremendous momentum around their data integration and data quality application suite as it moves up the IT priority list. Informatica 9 integrates technology from several acquisitions for a more integrated platform, making it easier for customers to deploy and add more modules, like data quality.
TWST: It sounds like the space is dominated by the bigger players. Is there room for the smaller guys in here?
Mr. Whitt: Based on our research, Informatica is the most dominant player when it comes to data integration software. IBM also offers data integration solutions and has completed several acquisitions to become more competitive with Informatica. However, data integration is Informatica's primary focus, and they function well with other software companies, like SAP (SAP) and Oracle (ORCL), and with system integrators like Accenture (ACN) and HP (HPQ).
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