Some notes from Bear Stearns on the analyst conference:
PSFT: Notes from the User Conference Bear Stearns & Co. Inc.
Rich Scocozza
November 04, 1998 <Picture>
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Rich Scocozza (212) 272-5840 11/4/98
rscocozza@bear.com
BEAR, STEARNS & CO. INC.
EQUITY RESEARCH
PeopleSoft (PSFT - 22 1/2) - Buy
Notes from the User Conference
We spent the beginning of the week at PeopleSoft's User
Conference, which is being held in San Francisco. From our
perspective, the conference appeared to be very well-
attended and there was a high level of enthusiasm among
customers, prospects and company employees. We have
provided some notes from the conference below:
***Tone of Business. The outlook for 1999 remains positive
among the PeopleSoft employees and customers that we spoke
with. Senior managers, included the company's three newly
appointed division Presidents (Products, Services and
Education and Government) are optimistic about customer
prospects. They are still talking about softness among some
larger companies where operations are being impacted by
global economic weakness. However, Year 2000, market
saturation, and pricing pressure from SAP are not large
concerns. Customers seem willing to spend as well, and
there is clearly an increasing demand by customers for a
combined product and solution sale. However, the customers
that we spoke did seem to be more deliberate about spending,
increasing the amount of review and analysis before
committing to deals. This trend appears very prevalent
among global implementations, which may impact the size of a
license or the speed at which they will be deployed.
Products that squeeze costs and time out of the value chain
seem to be particularly desirable. About 150 customer
prospects attended the conference.
***New Products/Initiatives. PeopleSoft 8 is scheduled for
delivery in the first half of 2000. In the meantime, the
company plans to deliver enhanced industry solutions in
financial services and the public sector, a new class of
analytical applications which the company calls enterprise
performance management, and an e-business initiative call
the PeopleSoft Business Network (PSBN).
The PSBN initiative is designed to extend an ERP backbone
into an e-business backbone. There are two aspects to this
business: 1) e-business communities - a new class of
extended enterprise application including procurement,
travel, health benefits, staffing, asset mgmt, etc.2) e-
business merchants - a new program to arrange and
integrate merchant activities around the e-business
communities. There are two sources of revenues: 1) fees
from merchants, 2) selling e-business communities.
We think that the analytical applications and e-business
applications should be attractive to PeopleSoft's installed
base. Both initiatives will put products on the market in
Q199. However, we would not expect the e-business
initiative, which essentially pushes out computing to
employees, customers and partners, to be a big contributor
to revenues in 1999.
***Outsourcing. PeopleSoft has concluded agreements with
seven outsourcing partners including CSC, KPMG and
PricewaterhouseCoopers. The outsourcing initiative
consists of three programs: 1) application management, which
focuses on implementation and management of enterprise
applications; 2) Application Service Providers (ASPs), which
offer application implementation and management via the Web;
and 3) business process outsourcing (BPO), in which systems
and business processes moved to an outsourcer qualified in
both disciplines. We think outsourcing represents an
excellent market opportunity for PeopleSoft in 1999.
***PeopleSoft Select. The company's push into the middle
market ($250 million in revenue and below), is gaining
momentum. PeopleSoft appears to be comfortable with its
business model in this market. On average, the company can
now sell products in less than 90 days and can get customer
up and implemented in less than 90 days. PeopleSoft is
looking to accelerate its middle market plans and wants to
add about 300 people to organization in 1999.
***Outlook. Despite experiencing a tougher third quarter
than we had expected, the sky does not appear to be falling
in at PeopleSoft. We believe the company is strategically
well positioned as a broad-based enterprise applications
vendor. Yes, the company is being more prudent about
spending --- slowing hiring and looking to fill only key
positions during this uncertain period. But, the interest
and willingness to buy applications seems to be there among
the customers that we spoke with. Although customers appear
to be allowing more time for review and approval cycles,
there appears to be a focus on 1) deployment of information
to the entire enterprise (as opposed to the 5% or 10% of the
organization that traditionally uses ERP applications and 2)
integration both inside and outside of the enterprise.
Deploying an integrated set of applications and processes
from point of demand to point of supply is a theme that we
consistently heard from customers.
Moreover, we believe that there is a large opportunity in
mining the installed base of 2.700 customers. The average
customer has only 4 or 5 products compared with the complete
product set of 45 products. The company is starting to
focus more attention on this opportunity by designating a
sales manager for installed customers only. However, we do
not detect a consistent level of focus across the
organization. We think PeopleSoft should do more in
promoting this opportunity within its divisions. Increased
selling to existing customers would have a positive impact
on margins. |
