Q2.2020 - Opera: Attractive Exposure To Africa's Fintech Landscape

• Upon a $600 million takeover by the new Chinese owners in 2016, Opera has shifted its focus to emerging fintech opportunities in Africa and Asia.
• Both owners have core competencies in the emerging market, having successfully launched two unicorns in China. We believe that Opera can crack Africa's market potentials.
• Opera grew ~94% in 2019, upon launching its fintech offering in Africa. The fitting approach and business model should allow Opera to sustain its growth.

Opera (NASDAQ:OPRA) is one of the most interesting turnaround growth stories we have come across. Driven by the ambitious vision of the new Chinese owners, it went from being a less successful browser maker to being a fast-growing microfinancing lender in Africa and Asia. Over the last year alone, revenue doubled to ~$335 million upon the launch of the fintech unit in Kenya and India. In this note, we take a closer look at Opera's new Chinese owners' motivation and the micro-financing business potentials in these emerging markets, which we think offer a uniquely attractive long-term outlook.

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Q2.2020 - Sprout Social: Owning The Social Media CRM Space

• Social Sprout has a deep moat in the social media management space, effectively deterring even the well-resourced competitors.
• It has not only fast-growing but also high-quality revenue. 99% of revenue is subscription-based, with 41% organic growth.
• Growth will slow down to ~25% this year. However, we think that the continuing investment in go-to-market will reaccelerate growth beyond 2020.

In our view, Sprout Social (SPT) presents an interesting investment opportunity due to its deep moat in the social media management space. Alternatively, we also view Sprout Social as a social media CRM (Customer Relationship Management) play. Founded in 2011, the company has expanded its offering and acquired a strong brand reputation globally over time. In this first coverage, we take a closer look at Sprout Social’s competitive positioning and revenue model, in conjunction with its go-to-market.

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Q2.2020 - MongoDB: Consistent Enterprise Market Share Gains

• MongoDB has an unrivaled leadership as the only evolving standalone player in the attractive NoSql and DBaaS spaces.
• The EA offering proves to be reliable as an enterprise-grade solution. We expect stronger market share gains. Total customers with at least $100k ARR up by 30% in Q1.
• Atlas will continue to benefit from the expected increased investment in the self-service channel in Q2 and beyond. We expect Atlas to make +50% of MongoDB's business at year-end.

We have a bullish long-term view on MongoDB (MDB), the provider of cross-platform document-based database solutions. The company has been relatively consistent in maintaining an exceptional +50% growth over the last few years, driven by its disruptive offering and the secular trends for NoSql and DBaaS (Database as a Service) adoptions across potential customers of all sizes.

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Q2.2020 - Workday: Resilient Business Model And Sustainable Growth

• Workday is an attractive investment opportunity, given its deep moat in the enterprise HCM and Financial Management, steady growth, and strong cash flow generation.
• The sticky client base and its high-quality licensing business model will help in weathering the ongoing uncertainty.
• We expect a sustainable +20% growth with potential operating margin expansion above its 16% target in the near term.

We believe that Workday (WDAY), the SaaS Finance and HR giant, presents an attractive long-term growth investment opportunity. Workday is one of the most disruptive players in the enterprise SaaS HCM (Human Capital Management) and Financial Management market. Over the last five years, revenue and FCF (Free Cash Flow) have grown by ~5x and ~9x consecutively. Despite being a +$3.6 billion-a-year business, Workday also still maintains a +20% growth with steady FCF profitability. In this first coverage of Workday, we will take a closer look at its high-quality business model and strategic go-to-market approaches, which we believe should allow the company to maintain its resilience and outperformance. We assign the stock an overweight rating.

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Q2.2020 - New Relic: AIOps And Edge Will Drive Client-Base Expansion

• We see growth opportunities through client-base expansion, driven by the adoption of New Relic Edge and AI in FY 2021 and beyond.
• New Relic also onboarded four new executives, demonstrating a full commitment to fixing the sales execution issue in Q1 2020.
• As we see potential growth and margin expansion opportunity in the medium term, we are upgrading our neutral rating to overweight.

In our recent note on New Relic (NEWR) in Q1 2020 last September, we highlighted the potential investment risk considering the management shakeup in the company. We rated the stock neutral at the time as we continued to believe in the business's potential and strong positioning in the attractive APM (Application Performance Monitoring) and observability spaces. New Relic has since continued to perform above our expectations, which increases our conviction in the stock further.

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Q2.2020 - Vroom: Disruptive Model With Proven Profitability Potential

• Vroom planned to get listed at ~$22 IPO price target. Upon the opening, the stock soared to ~$+47, which at ~4.2x P/S looks a bit overvalued to Carvana's ~1.4x.
• It is still well-positioned to disrupt the ~$840 billion used car market with its eCommerce business model, whose revenue grew by ~5x in the last four years.
• Demand has been strong, while variable vehicle expenses have also been in downward trends in recent times, further proving its profitability potential.

We believe that Vroom (NASDAQ:VRM) should be an interesting technology IPO opportunity this year. The company provides an end-to-end eCommerce platform for buying and selling vehicles, which was a +$800 billion market last year alone. In our view, the frictionless transaction, data-driven, and asset-light model are highly disruptive and more profitable at the same time. The company already filed for IPO earlier this June, and we had initially expected to assign an overweight rating on the stock upon its listing. As the shares price exceeded the expectation and soared to ~$47 on the first trading day, we will switch to neutral, for now, leaning towards overweight once we found a more attractive entry point.

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Q2.2020 - Cerence: Secular Growth Opportunity In Automotive AI Market

• With AI-based virtual assistants becoming more mainstream, Cerence will continue to benefit from the secular demand from the automakers across all tiers.
• The company has a deep moat and leadership in the automotive AI industry, having spent 20+ years building relationships with major automakers. BMW, Audi, and Ford are all customers.
• Its fundamentals are rock-solid. Revenue grew 23% YoY in Q2, with operating and EBITDA margins at ~30%.

We believe that Cerence (CRNC), the market-leading provider of automotive AI technology, will continue benefiting from the secular growth of automotive AI-based virtual assistants and maintain its leading position for the foreseeable future. Despite being founded in 2019 as a result of a spin-off from Nuance (NUAN), the conversational AI company we have also rated highly, Cerence has spent over 20 years in the automotive industry as a combined entity, perfecting its technology solutions and developing relationships with the major automakers. At present, we see two medium-term key catalysts in the business as we initiate our coverage with an Overweight rating.

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Q2.2020 - Eventbrite: Tough Outlook Even After Financing Boost

• Having been severely hit by COVID-19, Eventbrite should expect very little to no growth in 2020, even after the recent shift to online events.
• The $225 million financing from Francisco Partners will allow Eventbrite to test the monetization strength of its online event program.
• However, we remain skeptical of the overall Eventbrite's long-term growth prospect.

Towards the end of last year, we discussed how Eventbrite (EB) would need to have a more attractive risk/reward profile for investment consideration. As the COVID-19 pandemic has significantly weakened the company's fundamentals and also threatened its long-term prospects, we found it hard to justify a bullish position on the stock. Upon the pandemic, Eventbrite laid off ~45% of its employees to save $100 million for the year. As it entered a distressed situation, it also received a $225 million funding from a PE firm, Francisco Partners. The shares are currently down ~40% from December when we published our first coverage on the stock. In our view, Eventbrite will be in a distressed situation for some time, even beyond 2020. Given the tough outlook, we think the price needs to drop a lot more to justify the risk/reward. We will maintain our neutral stance, leaning more towards underweight.

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Q2.2020 - Domo Looks More Convincing Now

• Domo saw a strong Q1. Revenue grew by 19% despite 9% opex cut, highlighting a solid go-to-market execution and a proven offering.
• The better-than-expected renewal rates despite the $35 million cost-cutting plan mean there is room for more margin expansion.
• Domo is fairly priced. We will upgrade the stock to overweight with a price target of $37.

Domo (DOMO) looks much more convincing today than last August when we covered the stock the first time. Since then, shares price has been up ~36% as fundamentals have improved. The solid growth despite the decrease in cash burn in Q1 is a sign that the company has fully overcome the go-to-market issue. Given the potential upsides this year driven by the margin expansion and the seemingly successful go-to-market revamping, we will upgrade Domo from neutral to overweight.

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Q2.2020 - LivePerson: Still Difficult To Draw A Conclusion

• A strong increase in messaging volume will translate to higher revenue, given the company's mix of usage-based and license-based pricing.
• The disciplined approach in expense management will also drive EBITDA margin expansion by ~100-200 bps.
• The overall long-term outlook remains mixed, considering the challenging landscape and the limitation of its AI-based offering.

The near-term outlook for LivePerson (LPSN), the conversational commerce AI company, looks a lot better than we expected despite the COVID-19 situation. The company beat the Q1 revenue guidance while top-line growth accelerated to 18%, ~100-200 bps higher than the TTM growth at the end of last year. The company's commitment to achieving more cost-saving by leveraging automation, coupled with the increase in demand for a messaging-based solution, further suggests that there may be a near-term upside opportunity. On the other hand, we still have a mixed long-term view. The business model scalability and the competition are still long-term risk factors that concern us. Since our first coverage on the stock last November in which we discussed some of these concerns, the stock has been down ~4.5%. We will maintain a neutral stance on the stock for now.

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Q2.2020 - Recruit Holdings: Exposure To Fast-Growing Glassdoor And Indeed

• Two of the most well-known global HR sites, Indeed and Glassdoor, are subsidiaries of Recruit Holdings of Japan. Both are reported under the HR Technology business segment.
• Both businesses have an impressive 30%-50% YoY revenue growth with a double-digit EBITDA margin.
• Having made up 13% of Recruit's ¥2.3 trillion (~$20 billion) revenue in 2019, Indeed and Glassdoor increasingly look like the future of Recruit's business.

Founded in Japan over 55 years ago, Recruit Holdings (OTCMKTS: OTCPK:RCRUY) (JPX: 6098) is the largest HR (Human Resources) company in Japan. We believe the stock presents an attractive investment opportunity due to its strong growth and profitability, driven by its fast-growing HR technology and profitable staffing and media businesses. We believe that Recruit will continue to benefit from its ownership in Indeed.com and Glassdoor.com, two US-based HR technology companies with strong market share, growth, and brand presence. In our view, both companies are the future of Recruit's business. Furthermore, their resiliences have also helped Recruit weather the pandemic. The stock is currently trading at ¥3,818 (~$35) per share, down by ~15% from YTD-high, given the COVID-19 situation that has modestly impacted its core staffing and media businesses. We think that the current price level provides a good entry point, and as such, we will maintain our overweight rating on the stock.

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Q2.2020 - Asure Software: Bracing For More Impact

• COVID-19 has hit the business hard given the company's focus on SMBs. We expect no growth for the rest of 2020.
• We expect any potential M&A, by which the management expects to deliver an additional 10% growth in 2020, to be put on hold.
• The long-term issue regarding weak positioning remains.

We will remain neutral on Asure Software (ASUR), considering the current pandemic-related headwinds that have severely impacted its business and its SMBs client base. The stock is down ~24% from last December when we published our first coverage on the stock. Back then, we discussed our view of the company’s limited upside potential despite the shift to pure HCM SaaS business. Today, we still hold the same view of the outlook, which is even worsened by the COVID-19.

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Q2.2020 - Salesforce: Platform Adoption Should Reaccelerate Growth

• Despite having achieved a 30% revenue growth in Q1, Salesforce will guide a lower 17% growth for the full year. However, we expect growth reacceleration beyond 2020.
• The pandemic allowed the company to enhance its community and culture-building efforts, which also signal its resilience and focus on culture-driven future growth.
• The 360 platform grew by 62% to drive almost a third of the business in Q1, while enabling Salesforce to land AT&T as a customer, its largest deal to-date.

Salesforce (CRM)’s recent ~10% pullback from its YTD high in light of the softer full-year outlook provides an attractive entry point opportunity. We believe it still has one of the most interesting growth stories in the cloud software market, and we continue to recommend its fair risk/reward profile. The company will continue to benefit from its strong culture, resilient business, comprehensive platform offering, and the increasing penetration of enterprise BI and AI markets.

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Q2.2020 - Dynatrace: Driving Outperformance Through Bundling Strategy

• Product bundling is at the core of Dynatrace's go-to-market approach.
• The strategy has been successful and remains a differentiating factor, especially in the enterprise segment. Dynatrace has over 2,300 blue-chip enterprise customers.
• The strategy also drives solid growth and profitability. ARR more than doubled YoY in FY 2020, while the 83% gross margin is best-in-class.

Last October, we discussed the attractive opportunity for long-term tech and growth investors considering Dynatrace’s (NYSE:DT) transition into a SaaS player, highlighting the potential upside driven by the strong ARR growth and enterprise product-market fit. Since then, the share price has almost doubled to ~$37 per share, with the company ending the FY 2020 with an impressive ARR growth of 42% and 2,373 enterprise customers. In this note, we will take a closer look at the company’s unique go-to-market approach, which in our view remains a differentiating factor and a strong value proposition in the enterprise market.

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Q2.2020 - Splunk: Cloud Shift Can Accelerate Growth Even More

• Without the cloud shift, Splunk is already a deep-moat software company with an impressive ~$2 billion ARR that grows +40%.
• The cloud shift, which enables a higher-velocity sales process, can accelerate growth even more.
• The cloud free-trial model also enables more effective user journey tracking and analysis, which allows for better pipeline visibility and a more contextual lead qualification process.

The leader in the enterprise log management, Splunk (SPLK) is one of the few companies in the software space we have liked for some time due to its resilient and fast-growing business. Having landed over 90 of the Fortune 100 companies as its clients so far and reaching over $2 billion of annual revenue last year, the company will turn to the SaaS model to accelerate growth further. Upon the complete transition into SaaS, Splunk will benefit from a higher-velocity customer acquisition process and better pipeline visibility as opposed to its historical contract-based model. We will maintain our overweight rating on the stock.

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Q2.2020 - Asos: Targeted Approach Can Drive Long-Term Profitability

• Asos is an attractive opportunity in eCommerce due to its strong focus on the young adult segment and dominant presence in the UK, where competitor Zalando has a weaker footprint.
• Gross and operating margin have been slightly better than Zalando, driven by its targeted go-to-market approach and a simpler business model.
• Price could have been more attractive than 0.8x P/S, given the weak execution in recent times, negative cash flow situation, and COVID-19 impact.

The London-based Asos (OTCMKTS: ASOMY) (LON: ASC) is one of the eCommerce names we have been taking a closer look at for some time. The company has over 22 million active customers, with 70% of the €2.7 billion of revenue concentrated in the EU and UK, while the US made up 13% of the revenue. The company has differentiated itself by targeting the young adult segment, allowing the company to leverage a targeted go-to-market approach. Top-line growth and operating profitability have been steady over the last five years, though the business saw some operational challenges in 2019. While we believe that the long-term prospect as a +20% grower remains intact, we will maintain our neutral rating on the stock, for now, considering the potential near-term slowdown in operating and investing activities due to the COVID-19 situation.

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Q2.2020 - Amadeus: Eyeing A Rebound Opportunity

• Amadeus is a global market leader in high-barrier and mission-critical airline GDS and IT sectors. Most world major airlines are customers.
• It generated a €3.1 billion of revenue from its airline GDS business in 2019, having processed over 646 million of air bookings globally.
• The COVID-19 impact on the travel industry has temporarily weakened its fundamentals and shares price, which creates a good entry point.

Amadeus (OTCMKTS: AMADY) (BME: AMS) is a global leader in the travel and tourism Global Distribution System/GDS space. The GDS is a computer reservation system that sources real-time travel inventory data such as flights or room availability from travel providers (airlines, hotels, and others), which will then be consumed by the travel sellers (online/offline travel agents, metasearch, and others). The company has a strong moat and fundamentals. Almost all of the major online travel and hospitality players around the world are Amadeus' clients, and given the ~ €10 billion of TAM opportunity, the company's latest +€5.6 billion of revenue means it has secured over 50% of the market. Profitability has been strong as earnings, EPS (Earnings Per Share), and DPS (Dividend Per Share) growth have been consistent.

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Q2.2020 - Rapid7: Comprehensive And Top-Of-Mind Offering

• Despite the slowdown in 2020, the comprehensive offering will reaccelerate growth to +30%.
• Metasploit remains a hidden asset that will consistently drive long-term awareness.
• Given the profitability and cash-flow-positive guidance in Q4 and 2021, Rapid7 is undervalued at ~7x P/S.

We maintain our overweight position in Rapid7 (RPD). In our most recent coverage about Rapid7 last December, we highlighted the company's strong growth in its VRM (Vulnerability Risk Management) business and its open-source Metasploit project, which will continue to be a long-term hidden asset as Rapid7 navigates the rapidly-changing cloud security industry. In Q1 2020, Rapid7 continued maintaining its solid growth despite the near-term slowdown due to the COVID-19 situation, and it will guide towards profitability and being cash-flows positive beyond Q4 and 2020. In our view, Rapid7 will remain as a top-of-mind choice in the cloud cybersecurity market longer term, due to its strength across all core categories and the continuing global awareness of its offerings driven by the Metasploit project.

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Q2.2020 - Rakuten: Attractive Bet On Mobile

• Rakuten is now officially the 4th telecom operator in Japan after SoftBank, NTT, and KDDI.
• As a new entrant with no legacy debt, it has a competitive advantage, which allows leveraging the latest cloud-based virtual network technology from the start.
• Rakuten has partnered with KDDI to launch an offering at 50% cheaper price than SoftBank and NTT. KDDI has a bleeding market share and will be very incentivized to win.
• At 1x P/S, Rakuten is an attractive buy. The stock has received a lot of pressure in the last few years, potentially due to the volatile profit margins and perception of over-expansion.
• Rakuten is still the largest eCommerce player in Japan by far. Core business still grows at +18%, while it also has enough scale and capital to enter virtually any market.

Rakuten (OTCPK:RKUNY) is the largest eCommerce company in Japan. At ¥1.3 trillion (~$12 billion) of revenue in 2019, it is roughly 8 times smaller than SoftBank (OTCPK:SFTBY). Given its success in eCommerce, the company has diversified its business by expanding into fintech, media, logistics, and more through M&As, organic, and also minority investments in the last decade. Despite consolidated revenue consistently growing at +15% and even accelerating to ~18% in recent times, net income and ROE have been quite volatile.

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Q2.2020 - Gravity: Consistency Is The Next Test

• Having achieved exponential growth over the last three years due to the major success with RMEL, the stock will now be priced based on its consistency in sustaining growth.
• Anticipating the second wave of success through the launch of strategic RMEL updates in Taiwan and Southeast Asia/SEA in June, we upgrade our neutral rating to buy.
• Taiwan and SEA are Gravity's largest markets. Both made up almost half of the business in 2019.

We had been cautious about Gravity (GRVY), the developer of the famous Ragnarok game franchise. Back when we covered the stock last October, the stock was trading at ~0.7x P/S despite the business being on track to generate its highest ever annual revenue. Since last October, the share price has jumped by ~55%, while revenue has been in a solid upward trend over the last few years, driven by the success of the RMEL (Ragnarok M: Eternal Love) game. Given the consistency in business performance as of Q1 and the potential catalysts going into the second half, we will upgrade our neutral rating to buy.

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