BMO On Software: Starts Splunk At Outperform, Tableau, Qlik At Market Perform

BMO Capital Markets' Keith Bachman initiated coverage of Splunk Inc (NASDAQ: SPLK) with an Outperform rating. He also initiated Market Perform ratings for Qlik Technologies Inc (NASDAQ: QLIK) and Tableau Software Inc (NYSE: DATA).Analyst Keith Bachman expects the Business Intelligence [BI] market to grow by about 5 percent in each of the next two years. The BI and related security markets are expected to be prioritized over other areas in IT spending budgets.Bachman expects Qlik and Tableau to record combined growth of 23 percent y/y in 2016 and 18 percent y/y in 2017. Splunk is expected to generate strong y/y growth of 33 percent in FY2017 and 28 percent in FY2018, as it enters new markets.Companies depending on a narrow set of products are likely to face long-term competitive disadvantages. "As long as products are close in feature sets, we believe that larger organizations have cost and reach scale benefits," the analyst commented.While Qlik and Tableau are likely to face increased competition and are, thus, unlikely to become M&A targets, Splunk will continue to enjoy competitive advantages in its target markets and offer an attractive investment option.The cloud is likely to be a near-term tailwind for both Qlik and Tableau, although it could turn into a headwind over the longer term, Bachman said. Since cloud revenues constitute only a small proportion of Splunk's current revenues, it is likely to emerge as a strong headwind only over the long term.The analyst believes that all three companies would witness gradual margin expansion, as they are expected to favor optimization of revenues over margins and cash flows.