JPM_Software_Technology__2013-07-12_1161609

8/13/2019 JPM_Software_Technology__2013-07-12_1161609

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North America Equity Researc12 July 2013

Software TechnologyThe Source Code V47- Claims Management Software

Software Technology

Sterling Auty, CFAAC

(1-212) 622-6389

[email protected]

Bloomberg JPMA AUTY

Lauren Choi

(1-212) 622-6102

[email protected]

Saket Kalia, CFA

(1-212) 622-6477

[email protected]

J.P. Morgan Securities LLC

See page 19 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that tfirm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factormaking their investment decision.

Stocks in our coverage are surging higher with the market as thepre-announcement period has been very quiet. CHKP and FTNT put out earningscall notices giving investors some confidence, but we would note our industryconversations indicate the June quarter was bumpy. So, even if revenue results aredecent, it was probably not an easy accomplishment in our view. We have alsoseen a noticeable turn in RAX, one of our four favorite names, but remindeveryone that this name will likely be volatile as shown by the stock reaction tothe latest Amazon price cut on dedicated hosting. This week we take a look atanother of GWRE's product segments the claims software space.

Spotlight: Closer look at North American claims management market. As afollow-up to Source Code V34 P&C Policy Management, we are profiling the

North American P&C claims management space in this Spotlight, a space

where Guidewire is a clear leader. We recap current challenges in the P&Cspace, how claims management tools address these challenges, market sizing,and Guidewires competitive strength.

Recent Buzz: SNCR (OW/PT $35) was down 12% on a competitor downgrade.We believe SNCR is on target and expect an in-line 2Q. Investor narrativearound Rackspace has turned as evidenced by the first decline in short interestsince April. Investors are looking at the potential of group stabilization and whatit could do for the stock. But continued price cuts by Amazon showed just howvolatile the name can be as this weeks announcement moved the stock by asmuch as 8% intraday.

News That Matters: It was a relatively quiet week of news, as we gear up for

2Q earnings. ICANN Board approved 2013 registry agreement for new gTLDs,which is important for VRSN. Microsoft (covered by JPM Software analystJohn DiFucci) announced it is focusing its engineering efforts around OS, Apps,Cloud and Devices and aims to facilitate a holistic view of the companys

product lines.

Metrics That Matter: This week we updated two of our quarterly macroeconomic metrics. The first one is for US unemployment rate for 2Q whichcame in at 7.6%, slightly ahead of JP Morgan estimate of 7.5% and the secondupdate is for Euro and Yen currencies vs. USD at the end of 2Q which wereUSD 1.31 per EUR and 98.76 JPY per USD as compared to JPM estimate ofUSD 1.30 per EUR and 100.00 JPY per USD. And lastly, in our monthlymetrics, we introduce Jun-13 metrics. Some major updates from the Junemetrics include: NFIB index for small business optimism which declined 0.9

points in June, Semiconductor revenues for the month of June which was 3.2%up from last month and Manufacturing data which showed expansion in US andcontraction in Europe, although Europe showed some improvement from lastmonth.

Earnings season begins next week: Next week we start our earnings seasonwith one company CHKP on Thursday.


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North America Equity Research12 July 2013

Sterling Auty, CFA(1-212) [email protected]

Table 1: Next Week Earnings Preview

JPM Calendar 2Q13 Quarter Estimates

Company Rating PT Call Info JPM Street Preannounced/Guidance J.P. Morgan View

CHKP OW $53 Jul 18, 8:30 AM (ET) Revenue (in $M) $331.8 $336.4 $320-350 All eyes will be on the productrevenue line that we still haveforecast to decline 7% y/y. Webelieve the company had adecent finish to the quarter,but was very back-endloaded. Given the run in thestock, that number along withimplied bookings will have tobe positive to keep the sharesmoving higher.

Dial-In: 1 201.689.8261 EPS $0.81 $0.81 $0.76-0.84


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Spotlight: Closer Look at North American

Claims Management MarketAs a follow-up to Source Code V34 P&C Policy Management, we are profiling the

North American P&C claims management space in this Spotlight, a space whereGuidewire is a clear leader. We recap current challenges in the P&C space, howclaims management tools address these challenges, market sizing, and Guidewirescompetitive strength.

Claims Management Is another Key Element to ImprovingCustomer Service & Retention

Pressures on the top line and bottom line of P&C carriers

We believe property & casualty insurance carriers top and bottom lines arepressured as an industry. On the top line, the P&C insurance market is a stable andmature industry, with direct written premium (DWP) trending in line with GDP. It isalso a very fragmented market with multiple sub-markets (personal, commercial,specialty, etc), and hundreds of players in each region, further pressuring DWPgrowth. On the bottom line, there seems to be a growing number of catastrophes(Hurricane Sandy, etc), which could drive claims (ie payouts to policy holders) up.

Retention and new products are key to driving top line

Because of the industry dynamics we described above, we believe customer retentionand new product introductions are key to growth. We believe customer retention isimportant in the insurance industry because the longer customers pay a premium, themore profitable they will be even with periodic claims. New product introductionsare important too, as we believe some sub-segments of insurance could havedifferent growth/competitive profiles.

Claims management tools need to be more interactive with customers, and be

more technically savvy for vendors to improve retention

P&C carriers use their claims management system to accept, process, and pay claimswhen customers need to make a claim against their insurance policy. A customer is

probably not too happy when they are making an insurance claim, whether it is froma fender-bender with their car or for more serious damages to their property. For thisreason, the claims management system has to be easy to use for insurance agents inorder to provide timely, accurate service when paying claims. From the customer

perspective, policyholders want to interact with their insurance similar to theirinteraction with other vendors through portals or mobile devices, which placesdifferent strains on claims management systems. From the P&C carriers perspective,new technologies like fraud analytics, business intelligence, and geographicalinformational systems for example can make claims management systems moreefficient and reduce insurance leakage.

Claims Management Is a Big and Growing Market

We estimate the claims management market is worth $2-$2.5B, with about half

in North America

We estimate the worldwide market for claims management software and services isworth $2-$2.5B. That is based on our estimate of pricing to be 4-6 bps for every $1Bin DWP for the recurring license portion, plus ~1.5x for the services. The services


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intensity for claims is slightly lower than policy management, as that system is moreintegrated into the P&Cs core systems and is the system of record for the carrier. We

estimate worldwide DWP to be ~$1.5T, so applying that math gets us to ~$2.1Bworldwide. We estimate North America makes up about half of worldwide DWP,and with similar pricing, that means North America represents ~$1B in total marketsize, by our estimates.

27% growth in number of deals signed in 2012, and still room for growth for

two reasons

The six claims management vendors inFigure 1below signed 33 new NorthAmerican deals in 2012, up 27% from 2011, a sign of the healthy growth in thismarket. We believe growth can continue for two reasons. First, these six vendors had116 customers in production in North America, which we estimate is about 20%

penetrated. We estimate this back-of-the-envelope by assuming ~1,200 worldwideP&C carriers worldwide, of which ~50% are in North America, consistent with thedistribution of direct written premium. Second, there is still room for existingcustomers to upgrade to more current versions of software. For example, Gartnerestimates ~9% of Guidewires customers are on a current version, and similarly onlya couple of Accentures customers were on their latest release. We believe upgrades

bring more capability, cover more DWP, and thus help drive market growth.

Guidewire is the Clear Leader

Guidewire has the largest number of customers in production, and is winning

the most deals

As we show inFigure 2below, Guidewire is the clear leader in the space with itsClaimCenter product, with 60 customers in production, or 3x its nearest competitor.Based on customer count, this would equate to roughly 50% market share in claimsmanagement, though we note this is a very rough estimate without sales information.

Just as important, ClaimCenter is continuing to extend this lead by signing 4-5x morenew customers in 2012 than its nearest competitor with 18. We think this showsClaimcenter is keeping up with customer demands, and is capitalizing on itsleadership position in the market.

Figure 1: Guidewire the Clear Leader in Claims, and Continuing to Extend Lead with CustomerWins

Source: Gartner


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Guidewire is a leader in all tiers of P&C insurance

Figure 2below shows how the 116 North American customers are spread across the

three tiers of P&C insurance carriers. The three tiers are separated by the amount ofdirect written premium for an individual carrier, with tier 1 with more than $5B, tier2 between $1-$5B, and tier 3 less than $1B. Guidewire leads by 3x in tier 2 carriers,and by 2x in tier 3. This is not surprising as tier 2 and tier 3 customers are usuallyquicker to adopt more recent technologies, compared to tier 1 customers who canafford to rely on older systems given their market share. By the same token,Guidewire is virtually neck-and-neck with Accenture with 8 and 9 tier 1 customersrespectively, an admirable achievement for a much smaller and younger provider.

Figure 2: Guidewire's Leadership in Claims Crosses All Segments of the Market

Source: Gartner

Market is consolidating to select few vendors, we think partially from desire for

suite

Gartners Marketscope excluded six vendors in this version because they either didnot win any new customers in North America or did not have at least three livecustomers in production in North America, indicating the market is consolidating to asmaller number of providers. The vendors that were excluded because of no newcustomer wins were Aon eSolutions, Insurity, MajescoMastek, Pegasystems andMphasiS Wyde. Stone River was excluded because it did not have the minimumnumber of live customers in North America (note Stone River is headquartered inOakland, CA). We think part of the reason for the consolidation to less vendors is thedesire for customers to consolidate vendors and buy suite solutions, rather than

best-of-breed solutions.

Competitive Landscape

Guidewire is adding innovative products to maintain/grow its leadership

Based on our analysis of Guidewires Claimcenter, we see three areas that thecompany has invested in for innovation. First, is analytics with its good catastrophemanagement tools that offer heat maps and integration with third-party data (forexample weather services) which make insurers more prepared to respond. Second, isfraud detection, which recall we estimate fraud to consume 2-4% of global DWP orapproximately $50B per year. Third, is their newest introduction Guidewire Live,


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which will allow existing customers to benchmark performance against othercustomers. This is a new and innovative offering in P&C insurance, and while it is

still nascent, could help Guidewire extend its leadership position in claimsmangement. As we show inFigure 3below, Guidewire has received a "StrongPositive" rating, a distinction it has received for six consecutive years by Gartner.

How is Accenture different in claims management?

Just as in policy management (refer to Source Code V34), Accenture is Guidewire'smost formidable competitor in claims management as we show inFigure 3belowwith its "Strong Positive" rating. Accenture has a larger presence in tier 1 and tier 2customers, with 14 of their 16 North American customers in one of those two tiers.We believe this has given Accenture the reputation in the market of being a "largecustomer" provider, making it more challenging to go down-market. Like Guidewire,Accenture benefits from having a full insurance suite with Claims Components andDuck Creek Policy Administration. We think this is helping it capture more sharethan smaller point providers.

Figure 3: Gartner Vendor Ratings

Source: Gartner


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Top Picks

DealerTrack (TRAK)

Description: Provider of transaction-based solutions, including the largest credit application network, as well as a leading SaaS softwareprovider of solutions, including dealer management systems (DMS) into the automotive industry.Action: Buy the stock as recent SAAR data suggest healthy auto sales, but the stock has faded, unlike its five-year correlation to thisdata.Valuation: EV/FCFF of 26.2x as compared to SaaS of 20x and peer group of 18x.

Positives Opportunities Risks/Challenges Threats

Large ~$3-5B industryTransaction revenue addressablemarket approximately $630 million

and subscription software market$2.7-4B, by our estimates.

12% yoy SAAR should drive 15%organic growth rateTransaction revenue should grow2-3x the SAAR, potentiallyproviding 20-30% growth and,combined with subscriptionrevenue, should lead to 15%organic growth. SaaS shouldaccelerate in 2013 as divestituresannualize.

Upsell / Cross-sell into healthydealers

Auto dealers are in better financialposition than they have been in fiveyears, providing opportunity toinvest in solutions to help themgrow, and TRAK is best positionedto capitalize, in our view.

Consolidation fragmentedmarketManagement utilizing a solid

balance sheet to createshareholder value throughacquisitions that bolster long-termgrowth and cash flow potential, inour view.

Health of auto industryTransaction revenue is60% of total and 70%

correlated with auto sales.

Embedded softwarecompetitorsReynolds & Reynolds and

ADP lock in customers forlong-term contracts,making replacement salesmore challenging.

Lenders look foralternative in transactionbusiness

Technology has significantlychanged since the companyfirst began its creditapplication network. A threatwould be if lenders and non-bank companies that arelooking at mobile paymentopportunities form acompetitive solution.

Source: J.P. Morgan.


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Web.com (WWWW)

Description: Putting small business on the Internet.

Action: Buy stock because we believe valuation will re-rate higher as operating metrics keep improving.Valuation: Trading at 11.4x 2014E earnings for a company that we believe will generate consistent double-digit earnings growth. Toocheap, in our opinion.Positives Opportunities Risks / Challenges ThreatsMarket.

Attacking $19B market forsmall business Internet,eCommerce, andadvertising.

Network Solutionsacquisition could addincremental $144M in

revenue

Accelerating growth7% organic growth in 2013Eshould accelerate to doubledigits in next few years.

Visibility80-90% recurringsubscription revenue.

Social, local and MobileSelling marketing solutionsfor social networks, local,and in mobile.

gTLD program adds newreal estate on the Internet

Web.com applied for .webdomain and could benefit

from adoption of potentiallyup to 400 new top-leveldomains in 2013 andbeyond.

CyclicalSMB typically suffers intough economic times.

Competition:VistaPrint andConstantContact increasingfocus on providing smallbusiness online solutions.

New EntrantsBarriers to entry not veryhigh. Large tech or socialnetwork company offeringsimilar solutions couldimpact do-it-yourself part ofWWWW business.

Shelf registration

General Atlantic (GA) stillhas an estimated 8.5 millionshares from the NetworkSolutions acquisitionregistered that comeunlocked at the end ofOctober and the companyhas 7M primary shares.



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Rackspace Hosting (RAX)

Description: Rackspace is a cloud-computing provider in the managed hosting and public cloud infrastructure-as-a-service (IaaS)

markets. RAX resells data center space, leases network equipment, and provides service so customers can focus on their core business.

Action: Buy the stock as we believe the public cloud business will re-accelerate in 2H13, and the managed hosting growth will stabilize,which we think will drive multiple expansion. We note this stock, in our opinion, represents a very high risk, but potentially high rewardopportunity.

Valuation: Stock is trading at 9.2x FY14E EBITDA and has approximately 10% short interest; we think the multiple can get to 13x, whichwould still be a discount to its three-year average of 15x.

Positives Opportunities Risks/Challenges Threats

Move to cloud is secular trend,and RAX is a pure play. More

computing is moving to the cloud.RAX is a pure play in the space,compared to others that are smallparts of larger businesses.

Public cloud market is ~40%growerThe public cloud IaaS market isexpected to grow at ~40% CAGRthrough 2016. We believe RAX canparticipate in this growth.

RAX has been gaining share in

Managed hostingIDC forecasts the complexmanaged hosting market to grow at7-8% CAGR through 2016, andRAX has grown 15-20%, showingcompany is taking share.

Hybrid cloud is a nicedifferentiator. The combination ofRAX's managed hosting and publiccloud business gives customersthe choice to put differentapplications on dedicated hostingversus public cloud. Thisdifferentiates from pure-play publiccloud, where the range ofapplications could be limited.

Openstack could be a game-changer in public and private

cloudRAX runs its public cloud on anopen-source platform calledOpenStack. Because it is opensource, customers can preventvendor-lock in on other systems,and run it in the private and publicclouds.

Enterprise is still an opportunityRAXs historical stronghold hasbeen in small business (SMB). Butbecause of its Fanatical service

model, it has started to penetrateenterprises, which are usuallylarger deal sizes.

Long-term margin target of 47%leavea a lot of runwayEBITDA margins have been in the30-35% range, as the companyinvests in cloud opportunity. Longerterm, RAX is targeting 47%+EBITDA margins, leaving a lot ofrunway for growth.

Public cloud couldcannibalize managed

hosting businessAs more computing movesto the cloud, there could bea risk that more customersopt for public cloud ratherthan managed hosting,cannibalizing RAXs larger,more profitable business.

Company does not givedetailed guidance. RAXhas historically not givenquarterly or annual revenue

guidance (though it startedin 2Q13). In ourexperience, this sometimescreates big ranges inexpectations, which couldpotentially create toughcomparables despite solidbusiness performance.

Amazon continues tolower pricing frequently.

Amazon (covered by J.P.Morgan Internet analystDoug Anmuth) WebServices (AWS) is the #1provider of public cloudservices. It lowers pricingfrequently, which couldcommoditize the publiccloud.



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Recent Buzz

SNCR (OW/PT $35) down 12% on competitive

downgrade

We fielded a number of calls this week on Synchronoss posta competitor downgrade. We believe with Verizon live now,the company is on track to their 2Q guidance. Also becauseVerizon pays SNCR based on a combination of active,dormant, subscription and storage fees, we feel comfortablethat our estimates for 2Q and 2H is achievable. WithVerizon Cloud, Vodafone and the Indian carrier going livein 4Q or 1Q 14, we think there is enough catalysts for thestock to work in the 2H. We would buy on weakness.

Investors looking for the bottom in Rackspace

The short interest in Rackspace according to Bloombergdeclined in the June 28 report, the first notable reductionsince April. We are getting a number of investor callslooking at the name on the long side as we believe thevaluation under 10x EV/EBITDA is attractive. The stockcontinues to be one of our four favorite stocks, but wecontinue to highlight to investors that we believe the riskassociated with it is high as evidenced by the 8% intradayhit the stock took when Amazon announced the price cutto its dedicated server pricing. We believe the dedicatedhosting part of Rackspace business will see growthstabilize over the next two quarters, and that the cloud

business has the potential for re-acceleration. If thathappens we believe the stock will react favorably.


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News That Matter

ICANN Board approves 2013 registry agreement for

new gTLDs

The New gTLD program committee of the ICANN board ofdirectors approved the new registry agreement on 7/3. Thishas brought the new gTLD applicants closer to a pointwhere they can see their names go online. The new registryagreement includes a Trademark clearinghouse where thetrademark holder can protect there rights. This agreement isintended to enhance the security and stability of the Domainname System while bolstering the competition in domainname industry. To learn more please follow the link toICANN press release below:http://www.icann.org/en/news/announcements/announceme

nt-03jul13-en.htm

Amazon Web Services (AWS) cuts prices again

AWS announced on 7/9 that is cutting prices on dedicatedEC2 compute instances by up to 80%. Amazon has done20+ price cuts over the last few years on its various cloud

products, so this is not surprising. This could be negative forRackspace (RAX/OW), since the cuts are geared towardsthe dedicated business rather than the shared (ie publiccloud) infrastructure business, which is RAXs larger

business.

Microsoft announces restructuring, some questions

remain

MSFT (covered by JPM Software analyst John DiFucci)formally announced the details of a long-awaitedreorganization that focuses the companys engineeringefforts around OS, Apps, Cloud and Devices and aims tofacilitate a holistic view of the companys productlines. Notably, Windows and Office will fall under newleadership, while longtime Office leader Kurt DelBene isretiring. We believe the new organizational structurereflects MSFTs efforts to more clearly define its strategy

though that strategy still lacks clarity, in our opinion.
http://www.icann.org/en/news/announcements/announcement-03jul13-en.htmhttp://www.icann.org/en/news/announcements/announcement-03jul13-en.htmhttp://www.icann.org/en/news/announcements/announcement-03jul13-en.htmhttp://www.icann.org/en/news/announcements/announcement-03jul13-en.htm


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Metrics That MatterBelow you will find a table containing metrics that we believe are most important to the companies that we follow. We believe this will provide a concise resource totrack these metrics, and we will likely expand this section going forward. Many of these metrics are critical to the way that we build or validate the revenue forecasts forthe companies listed. Highlighted in gray are new updates and the value within bracket is the old value.

Table 2: Annual Metrics that Matter

Annual MetricsRelevant

StocksWhy Relevant? 2007 2008 2009 2010 2011 2012 2013E

Next

UpdateSourc

Engineers Employed (US) ADSK,

PMTC, ANSS

Tracks the number of mechanical engineers,civil engineers, and architects in the US

576530 605960 593610 571220 575980 593360May 2014

US BureaLabor Statyoy change 3.8% 5.1% -2.0% -3.8% 0.8% 3.0%

Giving USA (in $ Bil)BLKB

This tracks the amount of total donations by

most major sources (individuals,corporations, etc) in the US.

314.1 307.7 303.8 290.9 305.4 316.2June 2014 Giving U

yoy change 6.3% -2.0% -1.3% -4.2% 5.0% 3.5%

Top 500 Assets Under

Management (in $ Tril)ADVS, SSNC

Assets under management (AUM) are thelifeblood of investment managers, and

sometimes the metric for which vendorsprice solutions.

69.4 53.4 62.0 65.0 63.0October

2013Tower Wa

yoy change 8.9% -23.1% 16.1% 4.8% -3.1%

JPM Semi R&D Spending

Tracker ($ Bil)SNPS,

CDNS,

MENT

EDA spending typically comes out ofsemiconductor research and development(R&D) budgets, and has shown a 90%+

correlation over the last 10+ years.

19.2 17.6 17.4 19.8 22.6 25.4TBD

JPMorgpropriet

modeyoy change 13.3% -8.1% -1.1% 13.4% 14.4% 12.2%

EDA Spending ($ Bil) SNPS,

CDNS,

MENT

This tracks the health of EDA industry. 4.1 3.4 3.1 3.4 3.9 4.2 4.6ETBD

JPMorgpropriet

modeyoy change 9.6% -17.6% -7.4% 8.7% 15.1% 7.9% 9.6%

Flat Panel TV Shipments (in

millions) ROVI

Rovi generates an estimated ~25% of totalrevenue from licensing IP to TV

manufacturers based on shipments.

90.7 116.1 159.1 209.9 221.7 216.6 Feb/March2014

Display S

yoy change 63.1% 28.0% 37.0% 32.0% 5.6% -2.3%

US Individual Income Tax

Returns (in millions) INTU

INTU generates ~35% of revenue from its

consumer tax business, so we believe thechange in total US tax returns is a relevant

metric for this business

143.0 142.5 144.4 142.4 145.3 148.4 January2014

US InterRevenuServices (yoy change 3.3% -0.4% 1.3% -1.3% 2.0% 2.1%

Global Wireless Capex ($ Bil) DOX,

CMVT, NSR,

CSGS

The budget to vendors that sell into Telco'scome from capex. This is a gauge of how

spending is at their customers.

78.9 73.9 63.1 72.2 70.0TBD

JP MorgAnalyst R

Halls Estiyoy change 0.0% 0.0% -6.3% -14.6% 14.4% -3.0%

US Total Advertising

Spending ($ Bil)ROVI,

VRSN,

WWW

Online advertising spending is an importantmetric for ROVI, VRSN, and WWWW.

386.4 380.8 347.4 350.5 356.7 369.0 378.0ETBD

ZenithOptime

yoy change 3.2% -1.4% -8.8% 0.9% 1.8% 3.5% 2.4%

US Internet Advertising

Spending ($ Bil)ROVI,

VRSN,WWW

Online advertising spending is an importantmetric for ROVI, VRSN, and WWWW.

14.5 17.8 20.3 23.1 26.0 30.7 36.3ETBD

ZenithOptime

yoy change 30.9% 22.8% 14.1% 13.5% 12.6% 18.2% 18.2%

Security Spend ($ Bil) CHPK,

FTNT,

WBSN,

IMPV

We track this to keep an eye on spendinglevels for security companies.

11.6 13.9 14.8 16.5 17.7 19.1 20.6E

TBD Gartneyoy change 40.1% 19.6% 6.4% 11.6% 7.5% 6.4% 8.5%

Source: Shown Above.


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Table 3: Quarterly Metrics that Matter

Quarterly MetricsRelevant

StocksWhy Relevant? 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13E 3Q13E

Next

UpdateSourc

US Real GDP Change (atannual rate)

AllOn average, our coverage universe generates

~40% of revenue from the US2.0 1.3 3.1 0.4 2.4 2.0E 2.0E TBD

J.P. MorEconom

Euro Real GDP Change (at

annual rate)All

On average, our coverage universe generates~20-30% of revenue from Europe

-0.1 -0.7 -0.2 -2.3 -0.9 0.0E 0.5E TBDJ.P. MorEconom

US Unemployment rate (at

annual rate)

All, butparticularly

ADSK,

INTU,

PMTC, ANSS

Many software tools are sold on a per seatbasis

8.3 8.2 8.1 7.8 7.77.6

(7.5E)7.4E TBD

J.P. MorEconom

EUR/USD FX Rate All, but

particularly

ADSK,

PMTC, ANSS

For translation purposes

1.33 1.29 1.25 1.32 1.31.31

(1.30E)1.30E

TBDJ.P. MorEconom

yoy change -1.6% -9.6% -12.0% -2.9% -2.5% 1.6% 4.0%

USD/JPY FX RateAll, but

particularly

ADSK,

PMTC, ANSS

For translation purposes77.6 80.7 78.80 86.75 94.28

98.76(100.00E)

102.00ETBD

J.P. MorEconom

yoy change -6.1% -1.1% 0.4% 12.3% 21.5% 22.4% 29.4%

Smartphone Units ( in

Millions)DOX, SNCR,

MOTR,

ROVI

This is important for the health of theindustry

147.0 153.7 169.2 207.7 192.0 221.3E 242.9ETBD

JP MorgRod Ha

Global HaMode

yoy change 47.4% 42.6% 46.9% 38.3% 30.6% 44.0% 43.6%

North American Video

Subscribers (in 000s)ROVI

Rovi generates ~40% of total revenue fromlicensing interactive program guide (IPG)product and patents to service providers

97,802 97,480 96,733 96,914 97,144E 96,942E

TBD

JPMorgTeleco

Research T(Phil Cus

market m

yoy change 0.8% 1.0% 0.2% 0.1% -0.7% -0.6%

Total .net and .com net

additions (in millions) VRSNVerisign generates 95%+ of total revenue

from its .com and .net registry business

2.86 1.81 1.37 1.25 2.001.25E

(0.92E)0.89E

(0.81E) TBD VeriSig

yoy change 4.4% -7.2% -31.3% -34.2% -30.1% -30.9% -35.0%

Total Domain Names (in

millions) VRSN,

WWWW

We track the growth of all domainscombined to gauge market share

233.0 240.0 246.0 252.0TBD VeriSig

yoy change 11.1% 11.6% 11.8% 12.0%

Wireless Subscribers (in

millions) DOX, SNCR,

NSR, CNSITracks the health of the wireless industry.

308.59 310.76 312.33 315.02 316.13TBD

JPMorgpropriet

modeyoy change 5.6% 5.1% 4.0% 3.1% 2.4%

Source: Shown Above


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Table 4: Monthly Metrics that Matter

Monthly MetricsRelevant

StocksWhy Relevant? Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13

Next

UpdateSou

Total .com and .net name

additions (in thousands) VRSNVerisign generates 95%+ of total revenuefrom its .com and .net registry business

363.8 749.3 584.4 641.9 442.0 486.9 323.38/1/2013 Veri

monthly change -18.1% 105.9% -22.0% 9.8% -31.1% 10.2% -33.6%

TurboTax Season to Date

Returns (Total ex FF, in 000s)INTU

INTU generates 35% of revenue from itsconsumer tax business

12,699 17,649 24,252Feb 2014

CompRepy/y change (over comparable

period)-6.0% 0.6% 3.8%

US Auto Sales TotalAnnualized SA TRAK

TRAK's transaction revenue is 70%correlated with SAAR numbers.

15.3 15.2 15.3 15.2 14.9 15.2 15.9TBD

Autom

Newmonthly change -1.0% -0.5% 0.7% -0.7% -2.2% 2.4% 4.3%

Architectural Billings IndexADSK

Autodesk generates at least 30% of totalrevenue from the architectural, engineering,

and construction (AEC) industry.

51.2 54.2 54.9 51.9 48.6 52.97/24/2013

AmerInstituArchimonthly change -3.8% 5.9% 1.3% -5.5% -6.4% 8.8%

ISM Manufacturing Survey ADSK,

PMTC, ANSS

Manufacturing is a key vertical for designsoftware

50.7 53.1 54.2 51.3 50.7 49.0 50.98/1/2013

InstituSup

Managmonthly change 2.4% 4.7% 2.1% -5.4% -1.2% -3.4% 3.9%

Euro PMI Manufacturing

index ADSK,

PMTC, ANSS

Manufacturing is a key vertical for designsoftware

46.1 47.9 47.9 46.8 46.7 48.3 48.88/1/2013 Mar

monthly change -0.1% 3.9% 0.0% -2.3% -0.2% 3.4% 1.0%

SIA data (in $ Bil)SNPS,

CDNS,

MENT

Tracks worldwide semi revenue, important

for health of EDA spending

25.5 23.1 21.1 26.2 23.6 23.5 24.3TBD

SemiconIndu

Assocmonthly change 3.6% -9.1% -8.8% 24.2% -9.9% -0.2% 3.2%

EUR/USD FX Rate All, but

particularly

ADSK,

PMTC, ANSS

For Translation Purposes

1.31 1.33 1.34 1.30 1.30 1.30 1.31

TBDJ.P. MEconomonthly change 1.5% 1.6% 0.7% -2.5% -0.3% 0.1% 0.9%

USD/JPY FX Rate All, but

particularlyADSK,

PMTC, ANSS

For Translation Purposes

83.4 88.3 92.2 94.3 96.9 100.5 98.8

TBD J.P. MEconomonthly change 3.3% 5.8% 4.4% 2.3% 2.8% 3.6% -1.7%

Brent Crude Oil PricesAZPN

Aspen generates 40-50% of total revenuefrom the energy industry

109.7 111.8 115.2 111.2 104.8 103.0 103.2TBD

J.P. MEconomonthly change 0.3% 1.9% 3.0% -3.4% -5.8% -1.7% 0.1%

Small Business Optimism

IndexINTU,

WWWW,

RAX

INTU, RAX and WWWW generatesignificant percentages of revenue from

small business

88.0 88.9 90.8 89.5 92.1 94.4 93.58/13/2013

NatiFedera

IndepeBusin

0.6% 1.0% 2.1% -1.4% 2.9% 2.5% -1.0%

Intuit Small Business

Employment IndexINTU,

WWWW,

RAX

INTU, RAX and WWWW generatesignificant percentages of revenue from

small business

94.1 94.4 94.5 94.7 94.8 95.0 95.18/1/2013 Intu

monthly change 0.1% 0.4% 0.1% 0.2% 0.2% 0.2% 0.1%

Source: Shown Above


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IPO and M&A in the SectorBelow we provide a table of recent notable IPOs in software and related sectors.

Table 5: IPO List in the Software sector for the year.

Name Company Description Ticker Trading IPO Current Price % Chan

Date Price 7/11/2013

Guidewire Software Inc Insurance industry software GWRE 1/24/2012 13.0 44.3 240.8%

AVG Technologies NV Antivirus and Internet Security AVG 2/1/2012 16.0 21.0 31.4%Brightcove Inc Video hosting and publishing services BCOV 2/16/2012 11.0 9.1 -17.0%

Bazaarvoice Inc Social Analytics Platform BV 2/23/2012 12.0 9.8 -18.3%

Yelp Inc Social Networking YELP 3/1/2012 15.0 37.5 149.7%

Demandware Inc e-commerce solution provider DWRE 3/14/2012 16.0 46.4 190.3%

Exact Target Email marketing software ET 3/21/2012 19.0 33.8 77.6%

Vocera Communications Instant voice communication solutions VCRA 3/27/2012 16.0 14.0 -12.6%

Millennial Media Inc. Mobile advertising and data services MM 3/28/2012 13.0 9.5 -26.7%

Splunk Inc. Online information technology search engine soln. SPLK 4/18/2012 17.0 49.5 191.2%

Infoblox Inc Automated network control devices BLOX 4/19/2012 16.0 31.5 96.7%

Proofpoint Inc Data protection solutions PFPT 4/19/2012 13.0 24.0 84.8%

Acquity Group Ltd Brand e-commerce and digital marketing AQ 4/26/2012 6.0 13.0 116.0%

Audience Voice and audio processors ADNC 5/9/2012 17.0 13.1 -23.2%

Exa Corp. Simulation Software Developer EXA 6/28/2012 10.0 10.4 4.0%

Service Now Inc. Enterprise information technology management software NOW 6/28/2012 18.0 44.4 146.8%

Palo Alto Networks Next generation firewall provider PANW 7/19/2012 42.0 46.8 11.4%E2open Inc. On demand demand-supply solutions EOPN 7/25/2012 15.0 17.4 16.1%

Trulia Real estate search engine TRLA 9/19/2012 17.0 34.2 101.3%

Qualys Provides IT security risk and compliance management solutions QLYS 9/27/2012 12.0 16.4 36.4%

FleetMatics Group PLC Global Provider of fleet management solutions delivered as SaaS FLTX 10/4/2012 17.0 33.5 97.1%

Ambarella Inc HD video compression and image processing semiconductors AMBA 10/9/2012 6.0 17.8 196.7%

Shutterstock Inc Operates a global marketplace for commercial digital imagery SSTK 10/10/2012 17.0 60.2 253.9%

Workday Inc Renders enterprise SaaS business model products. WDAY 10/11/2012 28.0 65.1 132.3%

ModelN Provides revenue management software MODN 3/20/2013 15.5 24.5 58.0%

Marin Software Provides online advertising management services MRIN 3/22/2013 14.0 11.8 -16.0%

Rally Software Provides application lifecycle management solutions RALY 4/12/2013 14.0 24.5 74.9%

Tableau Software Provides analytics and data visualization software DATA 5/16/2013 31.0 55.8 79.9%

Source: Bloomberg


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Table 6: Key M&A events in the sector

Acquirer Target

Deal

Value

Announcement

Date

Acquisition

Multiple Reason

Intel McAfee $7.7B 8/19/2010 3.8x EV/Sales Acquired for security solutions.

Microsoft Skype $8.5B 5/10/2011 9.9x EV/Sales Support Xbox, Windows Phone, Lync & Outloo

Google Motorola Mobility $12.5B 8/15/2011 11x EV/ FY2 EBITDA

Wireless connectivity patent portfolio and also

boost to Google TV.

HP Autonomy $10.3B 8/18/2011 -

To strengthen data analytics, cloud and workflo

management capabilities.

Providence Equity Partners Blackboard $1.6B 10/4/2011 17.6x FY1 EV/FCFF Taking company private.

Oracle Corp. Right Now $1.5B 10/24/2011 6.8x EV/Sales

Acquired for on-demand customer service

solutions.

Synopsys Magma $507M 11/30/2011 3.6x EV/Sales Cost synergies, enhanced R&D in analog design

SAP AG SuccessFactors $3.4B 12/3/2011 11.7x EV/Sales

For cloud-based human capital management

solutions.

Oracle Corp. Taleo Corp. $1.9B 2/9/2012 5.9x EV/Sales To strengthen SAAS portfolio.

NEC Convergys IM Business $449M 3/22/2012 - IM system, including smart revenue solutions.

SAP AG Ariba $4.3B 5/22/2012 8.6x EV/Sales For cloud based spend management solutions

Microsoft Yammer $1.2B 6/25/2012 54x EV/Sales Acquired for enterprise social networking.

Apple Authentec $356M 7/27/2012 - Biometric authentication sensors & software.

Synopsys Springsoft $406M 3/8/2012 3.5x FY1 EV/Sales For additional analog & verification capabilitie

PTC Servigistics $220M 8/8/2012 - For Service Lifecycle Management (SLM)

IBM Kenexa $1.3B 8/27/2012 3.1x FY1 EV/Sales For recruiting & talent management solutions.DealerTrack ClickMotive $48.9M 10/2/2012 - To strengthen the digital marketing footprint.

RedPraire JDA $1.9B 11/2/2012 2.7x EV/Sales To offer broad portfolio of solutions & services

NCR Retalix Ltd. $650M 11/28/2012 17x FY13E EBITDA To expand retail industry leadership

Oracle Corp. Eloqua $871M 12/20/2012 9.3x EV/Sales

To create a comprehensive Customer Experien

Cloud offering

Synchronoss Newbay $55M 12/2/2012 -

To add cloud based technologies expand their

international reach

Oracle Corp. Acme Packet $1.7B 2/4/2013

23.2x

EV/maintenance To speed deployment of All-IP networks

Goldman Sachs Affiliate EBIX Inc. $820M 5/1/2013 3.8x EV/Sales Taking company private.

Source: Bloomberg.


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Table 7: Comparables

Price Info ValuationPrice as of Target Non-GAAP P/E EV/Sales EV/EBITDA EV/FCFF

Company Ticker Rating 7/11/2013 Price FY1 FY2 FY1 FY2 FY1 FY2 FY1 FY2Check Point Software Tech. CHKP OW $54.15 $53.00 16.1 15.2 5.4 5.1 9.1 8.6 9.4 8.8Fortinet FTNT N $19.92 $21.00 41.0 34.6 4.3 3.8 19.3 15.8 17.2 15.1Imperva IMPV OW $47.35 $47.00 NM NM 8.6 6.9 NM 66.6 NM 67.8Qualys QLYS OW $16.37 $15.00 NM 51.3 3.6 3.1 23.3 16.1 26.0 18.6ROVI ROVI N $23.44 $26.00 10.8 9.9 4.7 4.4 10.3 9.5 16.1 11.3

Average 24.1 26.7 4.9 4.3 15.9 21.9 16.8 22.6

Akamai Technologies AKAM OW $44.50 $52.00 22.8 19.6 4.5 3.9 10.5 9.0 19.2 15.0Equinix EQIX $199.51 39.5 30.5 5.6 4.9 12.2 10.4 NM NMRackspace Hosting RAX OW $40.25 $55.00 45.6 39.7 3.6 3.0 11.1 9.2 NM 94.6Verisign, Inc. VRSN N $46.10 $48.00 20.8 19.2 7.5 6.9 11.6 10.5 12.9 12.4Web.com WWWW OW $26.12 $20.00 13.0 11.4 3.8 3.5 13.4 11.9 15.3 12.2

Average 28.3 24.1 5.0 4.4 11.8 10.2 15.8 33.5

Amdocs Limited DOX N $38.14 $39.00 13.0 12.6 1.6 1.5 7.6 7.1 11.4 10.6Comverse Inc. CNSI N $30.81 $32.00 28.8 12.6 0.6 0.7 5.4 3.6 29.7 24.6CSG Systems CSGS N $23.58 $22.00 11.3 10.3 1.2 1.1 5.3 4.9 9.9 8.8Neustar NSR N $51.70 $48.00 15.6 14.3 4.1 3.8 8.4 7.6 13.1 12.4Synchronoss Technologies SNCR OW $28.48 $35.00 21.4 17.4 3.1 2.6 10.9 7.8 34.0 22.3

Average 18.0 13.5 2.1 1.9 7.5 6.2 19.6 15.8

Ansys ANSS N $78.35 $80.00 26.1 23.7 7.9 7.2 15.9 14.3 19.7 17.1Aspen Technology AZPN OW $31.42 $33.00 74.5 49.7 9.1 7.7 42.0 28.2 21.4 18.8Autodesk ADSK N $35.40 $37.50 18.3 16.3 2.7 2.5 9.7 8.7 12.5 11.4Cadence Design Systems CDNS OW $15.48 $17.00 17.8 15.5 3.0 2.7 9.8 8.7 12.4 11.3Mentor Graphics MENT N $20.43 $21.00 13.2 12.0 2.1 2.0 9.3 8.1 18.4 17.4Parametric Technology Corp PMTC N $26.58 $24.00 15.3 13.5 2.5 2.4 10.7 9.4 17.3 12.2Synopsys SNPS OW $37.20 $38.00 15.3 15.0 2.7 2.5 9.4 8.3 13.2 12.8

Average 25.8 20.8 4.3 3.9 15.3 12.2 16.4 14.4

Advent* ADVS N $26.87 $35.00 23.0 21.8 4.1 3.9 13.1 11.9 21.1 14.9Blackbaud BLKB N $33.00 $30.00 27.1 23.7 3.3 3.1 15.1 13.0 25.6 20.1DealerTrack RAK OW $38.22 $40.00 30.7 26.4 3.3 2.9 13.9 11.7 41.5 26.2Guidewire GWRE OW $44.30 $45.00 NM NM 8.6 7.4 55.1 57.2 86.6 70.9Intuit INTU N $64.38 $65.00 20.3 18.6 4.3 4.0 11.3 9.5 16.4 14.3Monotype Imaging YPE OW $27.78 $25.00 23.7 21.9 6.2 5.8 14.5 13.3 19.7 18.3ModelN MODN OW $24.49 $25.00 NM NM 5.2 4.3 NM NM NM NMRealpage RP N $20.01 $22.00 34.1 27.5 3.8 3.2 16.6 12.9 29.6 21.6SS&C Technologies Inc. SSNC OW $36.05 $34.00 19.6 17.6 5.5 5.1 13.6 12.4 21.1 19.3

Average 25.5 22.5 4.9 4.4 19.2 17.7 32.7 25.7

Mean 24.5 21.5 4.3 3.9 14.5 14.2 21.6 21.8

Median 21.1 18.6 4.0 3.6 11.5 10.4 17.9 15.0

Source: Company reports and J.P. Morgan estimates.


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Companies Recommended in This Report (all prices in this report as of market close on 12 July 2013)DealerTrack Holdings Inc (TRAK/$38.24/Overweight), Guidewire Software (GWRE/$44.51/Overweight), Model N

(MODN/$24.09/Overweight), Rackspace Hosting (RAX/$40.37/Overweight), Web.com (WWWW/$26.21/Overweight)

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the documentindividually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

Important Disclosures

Market Maker: JPMS makes a market in the stock of DealerTrack Holdings Inc, Web.com, Guidewire Software.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Model N,Web.com within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: DealerTrack Holdings Inc,Model N, Web.com, Rackspace Hosting, Guidewire Software.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investmentbanking clients: DealerTrack Holdings Inc, Model N, Web.com, Rackspace Hosting, Guidewire Software.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the followingcompany(ies) as clients, and the services provided were non-investment-banking, securities-related: Web.com, Rackspace Hosting.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,and the services provided were non-securities-related: DealerTrack Holdings Inc, Web.com, Rackspace Hosting.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment bankingDealerTrack Holdings Inc, Model N, Web.com, Rackspace Hosting, Guidewire Software.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment bankingservices in the next three months from DealerTrack Holdings Inc, Model N, Web.com, Rackspace Hosting, Guidewire Software.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or servicesother than investment banking from Web.com, Rackspace Hosting.

Gartner: All statements in this report attributable to Gartner represent J.P. Morgan's interpretation of data opinion or viewpointspublished as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publicationspeaks as of its original publication date (and not as of the date of this report). The opinions expressed in Gartner publications are notrepresentations of fact, and are subject to change without notice.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgancovered companies by visiting https://mm.jpmorgan.com/disclosures/company ,calling 1-800-477-0406, or [email protected] with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams mayscreen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or [email protected] .
https://mm.jpmorgan.com/disclosures/companyhttps://mm.jpmorgan.com/disclosures/companymailto:[email protected]:[email protected]:[email protected]://mm.jpmorgan.com/disclosures/companymailto:[email protected]:[email protected]


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Date Rating Share Price($)

Price Target($)

29-Feb-08 OW 20.47 -

12-Aug-08 N 15.79 -

02-Oct-12 OW 28.01 35.00

03-Jul-13 OW 36.24 40.00


Price Target($)

15-Apr-13 OW 19.92 25.00

0

17

34

51

68

85

Price($)

Oct

06

Jul

07

Apr

08

Jan

09

Oct

09

Jul

10

Apr

11

Jan

12

Oct

12

Jul

13

DealerTrack Holdings Inc (TRAK, TRAK US) Price Chart

OW N OW $35 OW $4

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage Feb 29, 2008.

0

8

16

24

32

40

Price($)

Mar

13

Mar

13

Apr

13

May

13

Jun

13

Jul

13

Model N (MODN, MODN US) Price Chart

OW $25


Initiated coverage Apr 15, 2013.


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Price Target($)

20-Dec-11 OW 10.67 18.00

26-Oct-12 OW 15.94 20.00


Price Target($)

05-Dec-12 OW 66.59 83.00

13-Feb-13 OW 74.98 81.00

22-Feb-13 OW 55.33 75.00

09-May-13 OW 52.24 55.00

0

11

22

33

44

Price($)

Nov

08

Aug

09

May

10

Feb

11

Nov

11

Aug

12

May

13

Web.com (WWWW, WWWW US) Price Chart

OW $18 OW $20


Initiated coverage Dec 20, 2011.

0

25

50

75

100

125

Price($)

Jun

09

Mar

10

Dec

10

Sep

11

Jun

12

Mar

13

Rackspace Hosting (RAX, RAX US) Price Chart

OW $75

OW $81

OW $83 OW $55


Initiated coverage Dec 05, 2012.


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Price Target($)

05-Mar-12 OW 21.69 30.00

05-Sep-12 OW 32.25 40.00

29-May-13 OW 41.53 45.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entireperiod.J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelvemonths, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return ofthe stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, ifapplicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy

reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not arecommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return iscompared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appearin the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans researchwebsite, www.jpmorganmarkets.com.

Coverage Universe: Auty, Sterling P: ANSYS, Inc. (ANSS), Advent Software (ADVS), Akamai Technologies, Inc. (AKAM), Amdocs(DOX), Aspen Technology (AZPN), Autodesk (ADSK), Blackbaud Inc (BLKB), CSG Systems (CSGS), Cadence Design Systems(CDNS), Check Point Software (CHKP), Comverse Inc (CNSI), DealerTrack Holdings Inc (TRAK), Equinix (EQIX), Fortinet, Inc(FTNT), Guidewire Software (GWRE), Imperva (IMPV), Intuit (INTU), Model N (MODN), Neustar (NSR), Parametric TechnologyCorp. (PMTC), Qualys (QLYS), Rackspace Hosting (RAX), Rovi (ROVI), SS&C Technologies (SSNC), Synopsys Inc (SNPS), VeriSign(VRSN), Web.com (WWWW)

J.P. Morgan Equity Research Ratings Distribution, as of June 28, 2013

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 44% 12%

IB clients* 56% 50% 40%

JPMS Equity Research Coverage 42% 50% 8%IB clients* 76% 66% 55%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold

rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the tableabove.

0

14

28

42

56

70

Price($)

Jan

12

Apr

12

Aug

12

Nov

12

Mar

13

Jul

13

Guidewire Software (GWRE, GWRE US) Price Chart

OW $30 OW $40 OW $45


Initiated coverage Mar 05, 2012.


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Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for coveredcompanies, please see the most recent company-specific research report athttp://www.jpmorganmarkets.com, contact the primary analystor your J.P. Morgan representative, or [email protected] .

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation basedupon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

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