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These Analysts Hung Out With Cloud Computing Giants; Here's What Happened

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Deutsche Bank analysts hosted a Bay Area investor bus tour last week and met with a number of cloud computing companies.

One of the stops was at salesforce.com, inc (NYSE: CRM). The analysts maintained a Buy rating on the company, with a price target of $80.

The platform or PAAS business now represents 15% of the company's subscription and support revenues. The business has generated sequential growth averaging almost 8% over last three quarters, which is significantly higher than the company average. The Platform segment includes Force.com and Heroku.

Force.com makes up most of the PAAS business. "The penetration of Force.com into SFDC's core Sales and Service Cloud customer bases is very high, but remains low into the Marketing Cloud base (an opportunity/something to fix). Importantly, we believe that Force.com has margins well above SFDC's corporate average," the analysts said.

The Heroku PaaS business, albeit much smaller, seems to be generated robust growth. It currently hosts three of the top 50 internet websites. "Heroku is now tightly coupled with AWS and we left the meeting wondering if SFDC is looking at hosting Heroku on alternative infrastructures."

The bus tour included a stopover at Workday, Inc (NASDAQ: WDAY). The analysts maintained a Hold rating on the company.

Although the emerging Financials suite has a marginal impact on the company's P&L, the diversification from HCM to Financials is a significant move. Based on the conversations with the management, the analysts don't expect the company to "offer updated Financials customer metrics at its upcoming analyst day on April 15th."

"WDAY talked about its move upstream into larger Financials deals (given improvements in the product features and scalability) and its decision to focus on certain verticals (higher-education, government, banking, healthcare) and avoid (for now) the "big TAM" manufacturing and retail verticals," the analysts said.

The company indicated that Oracle was equally aggressive on pricing in the Financials space as it is in the HCM space. When Workday loses, it is now "less often because of any feature gaps and more often because of aggressive pricing by rivals."

While expressing optimism regarding the company's move into Financials, the analysts mentioned that the pace of getting large customers has been slower than many investors had hoped a couple of years ago. "However, with overall billings growth of 72% last quarter and renewals just now kicking in, investors still appear to be patient as the Financials story unfolds," the report added.

Another stop was at Splunk, Inc (NASDAQ: SPLK). The analysts maintained a Buy rating on the company, with a price target of $80.

The company has recently been reporting robust results. The company appeared to "underplay" the impact of its recently launched fixed-price or "Unlimited EAA" SKU, whereby customers can buy unlimited log data indexing volume at a fixed price. Splunk estimates signing about 100 customers at the new SKU in FY16.

The company indicated that an impact from the new SKU is unlikely to be felt before 2HF16. Although the Unlimited EAA SKU could be quite expensive for customers, "SPLK has done a good job so far in tweaking its pricing points down to drive adoption, with no discernible negative impact on growth," the analysts commented.

Referring to Hadoop, the analysts said, "Cheaper data storage could drive demand for high-volume log data analytics, although we do worry about a) resulting pricing pressure, b) whether Hunk is really ready for prime-time and c) Elastic."

While Splunk's investment in security monitoring use cases seems to be paying off, this move "pits SPLK against several focused rivals," the report added.

Latest Ratings for CRM

DateFirmActionFromTo
Oct 2018NomuraInitiates Coverage OnBuy
Sep 2018BairdMaintainsOutperformOutperform
Sep 2018Deutsche BankMaintainsBuyBuy

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Posted-In: Deutsche BankAnalyst Color Reiteration Analyst Ratings

 

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