Equity Research 16 July 2019 CORE Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 52. Restricted - Internal U.S. Software The Q2 Earnings Guide Expecting Volatile Earnings Season: Q2 will provide more meaningful data points for the health of the software landscape as it is a larger quarter and also contains a first look into the second half with Q3 guidance. We see the risk for a very volatile earnings season with weakening macro and VAR survey data points against a backdrop of strong share price performances in recent quarters leading to heightened valuation levels. Given this setup we prefer to be very selective with our recommendations, but see Talend as a name that screens well. VAR Survey Shows Signs Of Macro Impact, MSFT Most Resilient: The generic IT spending related questions of our proprietary VAR survey clearly show a moderation compared to previous quarters. This is true for the current quarter but also for the outlook. Microsoft seems to be the most resilient, where healthy momentum still remains. Both Citrix and Symantec look weaker than past quarters. Prefer Stocks With a Very Interesting Set-Up: Given our cautious view of the Q2 earnings season we do not have too many stocks we want to highlight, but Talend stands out to us. Shares are down significantly this quarter (-24% vs. S&P500 of +5%) on fear that it will suffer the same fate as some of the other Big Data ecosystem players, namely Cloudera. However, we disagree with this analogy and believe Q2 could confirm our thinking. Further, the current valuation level (~4x EV/Subs revenue) represents a favorable entry point. SAP to Set Tone, Solarwinds and LogMeIn Good Examples of Names to Avoid: The name most sensitive to economics, especially when considering its European exposure, seems to be SAP. The company reports this Thursday and could set the tone for the rest of the earnings season. Macro will impact most players and hence it will be difficult to differentiate. However, we see additional issues from a tough set-up for Solarwinds with difficult comps in Q2 and LogMeIn with risks to billings expectations. In Security, We Like Set-Ups on VRNS, MIME, and FEYE: We think VRNS will transition to subscription faster than 25% guide, which takes income statement numbers down, but is a long term positive in our view shifting to subscription faster. We also like MIME into the print as a GARPy name growing mid-20%’s constant currency and likely some EBITDA upside, albeit with some FX headwind. We think FEYE also has a favorable setup as 2Q will be last quarter of big deal headwind, which means 2H19 billings will accelerate – note the street has not fully adjusted for Verodin dilution yet. SYMC Has Mixed VAR Survey Results, and PTC Macro Backdrop Has Gotten Tougher: More SYMC VARs were 1-5% below plan this quarter than December or March, which is not surprising given the management changes in early May that could have impacted the quarter. PTC expectations are low with the stock under-performing, but we think the manufacturing backdrop has gotten more challenging in some areas. INDUSTRY UPDATE U.S. Software POSITIVE Unchanged For a full list of our ratings, price target and earnings changes in this report, please see table on page 2. U.S. Software Raimo Lenschow, CFA +1 212 526 2712 raimo.lenschow@barclays.com BCI, US Saket Kalia, CFA +1 212 526 8465 saket.kalia@barclays.com BCI, US Pree Gadey +1 212 526 3156 pree.gadey@barclays.com BCI, US Mohit Gogia +1 212 526 1053 mohit.gogia@barclays.com BCI, US Michael Maguire +1 212 526-8682 michael.maguire@barclays.com BCI, US Andrew Thomas +1 212 526 8081 andrew.w.thomas@barclays.com BCI, US Barclays | U.S. Software 16 July 2019 2 Summary of our Ratings, Price Targets and Earnings Changes in this Report (all changes are shown in bold) Company Rating Price Price Target EPS FY1 (E) EPS FY2 (E) Old New 12-Jul-19 Old New %Chg Old New %Chg Old New %Chg U.S. Software Pos Pos Avaya Holdings Corp (AVYA) OW OW 11.23 20.00 16.00 -20 3.33 3.33 - 3.09 3.09 - Ceridian HCM Holding Inc. (CDAY) EW EW 50.15 46.00 46.00 - 0.46 0.45 -2 0.64 0.62 -3 Citrix Systems (CTXS) EW EW 100.84 111.00 111.00 - 6.06 6.06 - 6.68 6.69 0 Cornerstone OnDemand Inc. (CSOD) UW UW 62.06 51.00 55.00 8 1.11 1.11 - 1.51 1.51 - CyberArk Software (CYBR) EW EW 133.38 128.00 140.00 9 2.14 2.14 - 2.66 2.66 - FireEye (FEYE) EW EW 15.76 20.00 20.00 - 0.18 0.14 -22 0.24 0.24 - Paycom (PAYC) EW EW 243.64 185.00 232.00 25 3.31 3.31 - 4.30 4.30 - Rapid7 (RPD) OW OW 62.83 65.00 69.00 6 0.05 0.05 - 0.42 0.42 - SAP SE (SAP) OW OW 136.77 143.00 143.00 - 5.64 5.65 0 6.21 6.27 1 ...
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