Software review:
BANCBOSTON ROBERTSON STEPHENS
Marshall Senk - 415-693-3442
The Weekly Software Report, Volume 2, #14
As we look ahead to next week, the kick-off of our quarterly earnings
season, we expect our companies to show the typical seasonal patterns of
the first quarter as managements begin to navigate the challenging road
of 1999. While we are not expecting any huge blow outs, we do expect to
see solid results from most of our companies, particularly our Buy-rated
names. As we analyze the early disappointments we€ve seen in the
sector, we see several consistent themes, primary among them is poor
sales force execution. The fourth quarter brought aggressive hiring and
management expansion at many companies (particularly IONA and Software
AG) which, we believe, hurt visibility for Q1. We look for all of our
remaining names to publish results in line or slightly better than
expectations which could help pull our stocks out of their recent
doldrums.
Looking ahead to the rest of 1999, we continue to believe that we are in
the very early stages of the most significant platform shift in the
history of corporate computing. Our discussions with IT professionals
have convinced us that businesses are accelerating spending around new
web systems in order to best exploit the benefits that the Internet
introduces. Notably, since budgets are not a zero sum game, this
spending is crowding out dollars from more traditional application areas
(back office) and more traditional computing architectures including
mainframe and client/server. We believe that this platform shift is the
primary driver of earnings disappointments in the enterprise sector €
and the primary driver of upside for our emerging companies. We
continue to believe that Y2K is not much more than a scapegoat for poor
execution and missed product transitions to the Web and attribute much
of the budgetary uncertainty we hear from companies to increased
Internet spending and general execution miscues.
Accordingly, our top picks remain those companies on our list who
benefit most directly from the growth in the Internet including:
Broadvision, Intraware, Microsoft, and TSI International. First, we
continue to view Broadvision as the leader in the emerging market for
Internet applications software enabling true commerce via the Web. We
believe that the company delivered a fine quarter and continues to
benefit from its relationship with SONE, building its financial services
practice. Second, Intraware reported its February quarter results on
March 30, beating expectations on both the top and bottom lines. We
continue to view this provider of Web-based services for complete
software life cycle management as a unique and powerful play € which can
significantly lower software maintenance costs for corporate customers
and improve margins for software vendors. We look for new partnership
announcements to drive the stock in the coming quarters. Third, we view
the aggressive penetration of the enterprise market through an
increasingly attractive licensing model as the real story driving
revenue and EPS growth at Microsoft. Microsoft has unprecedented channel
and customer lock-in, which we believe are the legitimate advantages
that accrue to the provider of leading business and consumer software
platforms. As such, we reiterate our Buy rating. Our price target for
MSFT is $100. Finally, we look for another strong quarter from TSI as
the company focuses its efforts on integrating Braid Group into the
company following the March acquisition. We believe that significant
synergies beyond what we have modeled should begin to show up in the
next few quarters, particularly in European operations. Additionally, we
look for strong growth this quarter outside the company€s SAP business
(which we believe was also very healthy) enabling the company to build a
stronger foothold in the electronic commerce space.
Additionally, we believe that recent weakness in both Oracle and
Pervasive could present a significant investment opportunity as both
companies stand to benefit significantly from growing demand for
database technology to manage the explosion in on-line applications. We
believe that both companies are disproportionately benefiting from the
shift to the Internet and are emerging as leaders € Oracle at the high
end and midrange and Pervasive in the small business segment.
We believe that investors are likely to look through strong quarters
from Compuware and BMC Software as concerns about both Y2K and platform
transitions dominate investor thinking. Although we expect strong
quarters from both companies, we believe that the stocks could continue
to languish as investors wait for clear signs that both businesses have
made it past the pitfalls of 1999. We believe that the time to revisit
these names will likely be over the summer when we have a more clear
picture of demand in 2000 (which we expect to accelerate from current
levels) and have enough visibility into the balance of this year to
mitigate business risk.
Company Price 1 Wk % 1999 52-Wk Chg. frm BRS
Name Ticker 4/15 Chg. YTD High 52 wk Target
high Price
to 4/15
Software AG
Systems AGS 6.75 -0.9% -62.8% 33.00 -79.5% $12
BEA Systems BEAS 16.06 -2.7% 31.1% 27.87 -42.4% $15
BMC Software BMCS 37.56 5.4% -15.7% 60.25 -37.7% $55
Brio Tech BRYO 15.50 -3.1% -12.4% 19.06 -18.7% $19
BroadVision BVSN 51.38 -1.3% 60.5% 72.37 -29.0% $60
Comp Assoc CA 35.94 -2.5% -15.7% 61.93 -42.0% $60
Compuware CPWR 20.44 7.6% -47.7% 40.00 -48.9% $45
Forte Sft FRTE 4.63 -15.9% -21.3% 9.50 -51.3% $5
Genesys Labs GCTI 15.88 32.3% -28.7% 38.25 -58.5% $45
Hyper Sols HYSL 12.44 3.6% -30.9% 50.75 -75.5% $20
Info Advtg IACO 6.00 10.3% -20.7% 14.25 -57.9% $15
Informix IFMX 7.81 10.6% -20.9% 14.00 -44.2% $7
Intraware ITRA 40.44 -6.3% 152.7% 44.38 -8.9% $55
IONA Techs IONA 18.94 38.4% -50.2% 50.75 -62.7% $25
Mobius MOBI 14.13 -15.7% -5.0% 24.43 -42.2% $19
Microsoft MSFT 88.88 -6.0% 28.2% 95.62 -7.1% $100
Oracle ORCL 24.88 6.7% -13.5% 41.18 -39.6% $35
Pervasive PVSW 17.88 22.2% -7.1% 22.25 -19.7% $22
Sybase SYBS 9.06 30.6% 22.4% 11.62 -22.0% $10
TSI Intl TSFW 19.50 -19.2% -18.5% 32.00 -39.1% $30
Unless otherwise noted, prices are as of close April 15, 1999.
Copyright * 1999 BancBoston Robertson Stephens Inc. |
