Pacific Crest On Why The CPQ Market Is Heating Up

• PROS Holdings, Inc. PRO shares are down 6 percent since November 30, while shares of salesforce.com, inc. CRM lost 2 percent over the same period.
• Pacific Crest’s Ben McFadden mentioned that strong demand for CPQ, as evidenced by the acquisition of SteelBrick by salesforce.com, should bode well for PROS.

Analyst Ben McFadden said that the acquisition of SteelBrick by Salesforce for $360 million highlights growing traction around Configure-Price-Quote, or CPQ, solutions. He believes that the market for CPQ is heating up, which positions PROS well heading into 2016.

Among the various indicators of the CPQ market gaining momentum, the most prominent is that while many companies have refreshed their CRM systems, they need CPQ solutions to speed up the time to quote for complex products and ensure a better customer experience.

The CPQ market is fragmented. While Apttus and SteelBrick are competing entirely in the Salesforce ecosystem, others like Oracle CPQ, CallidusCloud and FPX are competing elsewhere. “We believe the CPQ market is roughly $500 million in size, growing greater than 25% y/y. PROS solution is differentiated from the field,” McFadden wrote.

Since SteelBrick and PROS have a different customer base, the Salesforce acquisition is unlikely to have a near-term competitive impact on PROS.

“The CPQ market is showing signs of heating up, Q4 is likely to be the first sign of strength in subscription revenue, and 2016 is likely to provide multiple catalysts as the model shift to recurring revenue progresses. With the narrative set to improve, we continue to believe shares offer significant upside potential for long-term investors and remain buyers of PRO,” the Pacific Crest report noted.