麦格理-美股-软件行业-美国软件行业盈利手册：2018年Q4盈利预览-2019.1.29-96页.pdf

Please refer to page 94 for important disclosures and analyst certification,or on our website January 2019 North America EQUITIES Inside FQ418 Earnings Preview 2 Microsoft FQ219 Preview 7 ServiceNow FQ418 Preview 15 Proofpoint FQ418 Preview 23 Dropbox FQ418 Preview 31 2u FQ418 Preview 38 Tableau FQ418 Preview 45 Instructure FQ418 Preview 52 Check Point FQ418 Preview 59 Rapid7 FQ418 Preview 66 Casa Systems FQ418 Preview 73 SolarWinds FQ418 Preview 79 Symantec FQ319 Preview 86 Changes to our MSFT estimates on Pages 8-9.Changes to our NOW estimates on Pages 16-17.Analysts Macquarie Capital(USA)Inc.Sarah Hindlian +1 212 231 1371 Frederick Havemeyer +1 212 231 1830 Software Earnings Handbook FQ418 Earnings Preview Key points We expect to see generally strong IT software spending to have persisted in FQ4,though less upside than usual due to stock market vol.However,we are expecting co.s to be conservative on guidance given a 35-day govt shutdown,rising dollar,and macro risks like Brexit.We would look to add post Q1.Valuation high,but note standout pos.channel results at DATA.Steady solid results at NOW and PFPT,in line at CHKP.Our Findings on Overall Software Environment,Key Spending Areas Our detailed channel work on the fourth quarter of 2018 with 40 application and infrastructure security resellers and partners suggests that FQ418 was a generally solid quarter backed by a very strong IT spending environment,with digital transformation for business optimization a driving force.The areas where partners we queried noted seeing strong early budgets in 2019 include:front-office software such as CRM,data analytics,cloud email,identity security,and back-office such as cloud HR,cloud security,cloud General Ledger,and IaaS.Areas of spending that are seeing lower priority according to partners queried across their customer base included:enterprise firewalls,web proxies,payroll software,SEIM,and endpoint,after solid spending in 2018.Overall,we expect good FQ4 reports,and only a handful of partners suggested that the stock market volatility in Dec.adversely impacted general spending.EMEA was robust,but the industrial and manufacturing verticals were generally softer,while the govt shutdown was diminutive in period.We Expect Conservative Outlooks Given Govt,Macro,FX,ASC 606 We estimate overall software has 7%of annual revenues exposed to the US federal govt,with some entities higher such as PANW,SPLK,MSFT,SYMC,and others.While 60%of spending occurs at Fed year-end in CQ3,we do believe the 35-day US govt shutdown will create some headwinds.Partners noted DoD continued to spend,but other areas were softer with 15%of large SIs flagging a slowdown in FQ1 from this issue.With headwinds ahead such as Brexit,trade wars,and difficult comps against ASC 606,we expect conservative outlooks.Given valuations are 38%and 35%above 10-year averages on EV/Sales and EV/FCF,respectively,and 17%above last years on FY2 cons.EV/Sales,we would trim and look to add to top names like MSFT,NOW,and PFPT post EPS.Findings on EPS are inside.Stand-Out Channel Checks of Note:+DATA,SYMC Improves,PFPT Lands Big Wins in EMEA,Steady at NOW,though cons.looks high for FY19,More.We detail data on our channel work with leading partners,and our views on stocks into EPS.We are advising investors that valuations in some spots have gotten frothy and headwinds exist,so save ammunition in case of some softness.We had notably better checks at Tableau and Symantec,both Neutral-rated names which we go over inside as to why,whereas we had steadily solid checks at ServiceNow and Microsoft Azure Services(looking for 70%Y/Y growth).PFPT won some large EMEA logos,but N.A.more in-line.CHKP,RPD,SWI,CASA and more inside.Macquarie Research Software Earnings Handbook 29 January 2019 2 FQ418 Earnings Preview FX and Valuation Trends The FX environment broadly worsened during the quarter as the EUR and GBP period average exchange rates depreciated by 1.3%and 1.7%against the USD respectively,while the JPY period average exchange rate appreciated by 0.7%.Valuations across our covered markets have been volatile with the recent market sell-off,though valuations remain elevated Y/Y and vs.historical averages.Growth software valuations on EV/Sales have expanded 15.2%vs.3 months ago but have depreciated 8.3%vs.6 months ago.On EV/FCF the group has expanded just 2.5%vs.3 months ago but has expanded 14.4%vs.6 months ago.Growth software valuations remain elevated vs.the prior year,with the group average EV/Sales valuation up 16.3%above last year,while the group average EV/FCF valuation is up just 3.8%above last year.The growth software group is presently trading 1 STD above the historical 5-year average on forward EV/FCF and 2 STD above the historical 5-year average on forward EV/Sales.Traditional software vendor average P/E valuations have generally contracted,with the current group average valuation roughly flat vs.3 months ago,down 11.0%vs.6 months ago,and down 10.3%vs.last year.The group on average is trading at 22.1x,near the 15-year mean group average of 19.4x Our broadest measure of the software marketplace,which includes 165 stocks,shows that valuations on EV/Sales are roughly flat vs.3 months ago and down 11.4%vs.6 months ago,though valuations remain 13.5%above last year.On EV/FCF software group valuations have contracted 6.1%vs.3 months ago and 12.6%vs.6 months ago,though valuations have expanded 6.1%vs.last year.Valuations in this software group continue to trade near 2 STD above the historical 10-year group average on EV/Sales and around 1 STD above the historical 10-year group average on EV/FCF.Fig 1 Growth Software Sector Historical EV/Sales Valuation(N=54)Source:FactSet,Macquarie Capital(USA),January 2019 Macquarie Research Software Earnings Handbook 29 January 2019 3 Fig 2 Growth Software Sector Historical EV/FCF Valuation(N=54)Source:FactSet,Macquarie Capital(USA),January 2019 Fig 3 Traditional Software Sector Historical P/E Valuation Source:FactSet,Macquarie Capital(USA),January 2019 Macquarie Research Software Earnings Handbook 29 January 2019 4 Fig 4 Broad Software Sector Historical EV/Sales Valuation(N=165)Source:FactSet,Macquarie Capital(USA),January 2019 Fig 5 Broad Software Sector Historical EV/FCF Valuation(N=165)Source:FactSet,Macquarie Capital(USA),January 2019 Government Shutdown Lasted 35 Days,May Recur Shortly The recent US Federal Government shutdown was the longest in US history,eclipsing 20 others that preceded it.Out of the 20 prior shutdowns,most were short-lived,with only a handful surpassing 10 daysthe longest being 21 days during the Clinton administration in 1995,and the most recent being 16 days in 2013 during former President Obamas time.The 2018-2019 Federal Government shutdown Macquarie Research Software Earnings Handbook 29 January 2019 5 was centered on the division between Congress and President Trump around funding a border wall between the US and Mexico which caused non-essential government operations to close due to lack of appropriated funding.In the 2013 Federal Government shutdownthe only notable shutdown this centurywe generally find impact to enterprise software vendors was mostly de minimis.We note Cisco was one of the few technology vendors who called out and quantified the impact as an approximate$50mn headwind in its Q12014 quarter;still only amounting to 50 bps of the top line.We remind investors that the federal government tends to spend the most in FQ3 with federal year end Sept.30th,such that the timing of this shutdown was also ideal,with most deals already closed.We estimate that with 7%of software spending in US federal,another 3%in state,that 60%of that spending occurs in FQ3,with the remaining spread out over the remaining 3 quarters.However,for companies under our coverage including Microsoft,Oracle,and Palo Alto Networks who all have more significant exposure to the Federal government,we expect financial risks would begin to accumulate on a prolonged shutdown or on the back of reoccurrence.Companies like SolarWinds also have high exposure to govt spending,though it may be spread out between areas that are still open and others that are closed.We show exposure below,and note that the shutdown may cause pushouts in awarding new contracts(JEDI cloud contract)or result in lower demand for products/services,in addition to delayed payment for services already rendered.History of US Government Shutdowns Source:Forbes,Statista,Macquarie Research,January 2019 We note some potential impacts from the govt shutdown below:Delays in appointing new contracts and higher scrutiny of non-essential contracts Cash flow impact on companies if funds are not appropriated for services already rendered Timing or any shifts around the large JEDI$10B cloud contract,though DoD is still operating Possible Q4/Q1 revenue hit for companies with greater exposure to government contractslarge enterprise software vendors,cybersecurity companies.Start Date Administration Length12/21/2018Trump3512/15/1995Clinton219/30/1978Carter179/30/2013Obama169/30/1977Carter129/30/1979Carter119/30/1976Ford1010/31/1977Carter811/30/1977Carter811/13/1995Clinton512/17/1982Reagan311/10/1983Reagan310/5/1990Bush311/20/1981Reagan29/30/1984Reagan21/19/2018Trump29/30/1982Reagan110/3/1984Reagan110/16/1986Reagan112/18/1987Reagan12/8/2018Trump1Macquarie Research Software Earnings Handbook 29 January 2019 6 Risks of cyber breaches with lack of govt staff.For investors looking for companies who have highlighted government shutdown exposure in the past,companies like Citrix have noted:“From time to time,we could maintain individually significant accounts receivable balances from our distributors or customers,which are comprised of large business enterprises,governments and small and medium-sized businesses.If the financial condition of our distributors or customers deteriorates,our operating results could be adversely affected.Microsoft,also notes that“.An extended federal government shutdown resulting from the failure to pass budget appropriations,adopt continuing funding resolutions or raise the debt ceiling,as well as other budgetary decisions limiting or delaying federal government spending generally,could reduce government IT spending on our products and services and adversely affect our revenues.”VMW also notes such risks,as do others,while Cisco in particular after the next longest shutdown noted:“From a customer markets standpoint,in the first quarter of fiscal 2014 we had moderate revenue growth in the public sector and commercial markets,and slower growth in the enterprise market.Revenue increased in the public sector market,led by higher spending from US state and local governments in first quarter of fiscal 2014 as compared with the first quarter of fiscal 2013.Although we do not believe that the US Federal government shutdown,which occurred during our first quarter of fiscal 2014,had a significant direct impact on our US public sector orders and revenue,we believe it impacts global business confidence and thus our order and revenue momentum more broadly.However,the next quarter the co.also noted that“The last month of our quarter was during the US government shutdown.The impact on our federal business was approximately$50 million.Our team there did an exceptionally good job managing through this challenging period.However,the shutdown,debt ceiling negotiations,and delay of key decisions exacerbated the lack of confidence among business leaders we had highlighted over the past few quarters.”Palo Alto also highlights this as a risk noting,“despite continued uncertainty in the macroeconomic environment,in particular,weakness in EMEA and a slowdown in spending by and the temporary shutdown of the US Government.These macroeconomic factors may continue to impact overall spending in information technology(IT)by our customers,which could adversely affect our revenues and operating results”The co.also notes in its risk disclosures that“Government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding authorizations.”Overall,we do expect there to be modest headwinds to the FQ1 software outlooks from the 35-day federal government shutdown.Our companies with significant federal govt revenue exposure include Microsoft,Oracle,Symantec,Palo Alto Networks,Solar Winds,ServiceNow,Splunk,and Salesforce,while our names with little to no direct federal govt spending exposure include Instructure,2U(US Department of Education remained funded and open during this recent shutdown),and Check Point.Companies with modest exposure(5%or less of govt)include Tableau,Proofpoint,Workday and Rapid7.Macro Backdrop Overall,we do not find the general macro backdrop to be favorable right now,with trade wars not yet resolved,Brexit unclear,the government shutdown only temporarily being alleviated after 35 days,the rising dollar,and simply the duration of the current bullish cycle.However,within the S&P,we expect software to outperform,given a large base of recurring revenues,improving margins and FCF,declining SBC,and of course,a leading role in the digitalization of the global economy.However,in the near term,we see valuations as extended and show that EV/Sales multiples are 38%above the 10-year EV/Sales average and 35%above the 10-year EV/FCF average of our 165 software group tracker(Figures 4 and 5 above).Macquarie Research Software Earnings Handbook 29 January 2019 7 Microsoft FQ219 Preview Microsoft will report earnings on Wednesday January 30th after the close.We are expecting a solid report from Microsoft.Our view is supported by our findings of strength in Azure,which should support above 70%Y/Y growth(which appears to be the buyside expectation),ongoing enterprise Windows upgrades and Office 365 migrations(we are expecting O365 Commercial seat growth of 27%Y/Y vs 29%Y/Y last quarter,30%in the prior year period,and 29%in FY”18),gaming momentum to continue on the back of strong holiday demand for Fortnite(Apples App Store saw record downloads with Fortnite and other online gaming platforms cited)and more.We note that investor sentiment has become muted in the name,with many concerned about difficult comps in the 2H of 2019 due to strength in 2H18,the rate of deceleration of Azure and how to model the trajectory of the business,the declining PC environment,difficult gaming comps due to Fortnite,and heavy federal govt exposure while the dollar strengthens.We expect upside to FQ2 driven by strength in uptake of hybrid solutions,our work that shows Microsoft continuing to gain mindshare in enterprise budgets,in particular for Azure,while cloud email is seeing higher demand this year vs last in our channel dialogues.However,we are expecting the co.to issue a conservative outlook due to its heavy federal government exposure,but believe that this has been reflected in recent share price to some extent,and a more modest valuation than its 15-year peak of 27.5x forward