Zoom, Datadog among companies in broad new Credit Suisse software view

Sep. 24, 2022 12:00 PM ETZoom Video Communications, Inc. (ZM), DDOG, MNDY, NEWRMSFT, LPSN, CSCO, RNG, APPN, TWLO, COUP, BL, SMAR, PD, ASAN, CVT, ETWO, LVOXBy: Rex Crum, SA News Editor1 Comment

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Analysts at Credit Suisse have taken on the small-and-mid sized software market with a wide swath of new coverage of the likes of Zoom Video Communications (NASDAQ:ZM), New Relic (NYSE:NEWR) and Coupa Software (COUP).

The Credit Suisse team, led by managing director Fred Lee, said in an extensive research report that as the world emerges from the Covid-19 pandemic, the topic of the future of work will continue to be at the center of the growth, opportunities and challenges for the software sector.

In its report, Lee's team said the "fundamental long-term prospects" of such software companies remain strong due to being at "the epicenter of a generational digital transformation boom." Or, to put things another way, "Where this is change, there is opportunity, and there is significant change."

With that in mind, Credit Suisse analysts this week initiated coverage of 18 small-and-mid-size software companies that specialize in business services such as employee communications, data management and networking monitoring and security.

Of course, some companies got higher ratings than others, as Credit Suisse set outperform ratings on Cvent (CVT), DataDog (NASDAQ:DDOG), monday.com (NASDAQ:MNDY), New Relic (NEWR) and PagerDuty (PD).

With regards to New Relic (NEWR), which specializes in cloud-based data-analyzation software, Credit Suisse said the company "has successfully reinvigorated a customer-centric product development capability and transitioned to a product-led growth model." Credit Suisse added that New Relic's (NEWR) improvements in its business model have not yet been "fully appreciated by the market," and that a few quarters of "steady execution" should boost investors' faith in the company.

Credit Suisse stepped down the ladder a bit with new neutral ratings on Appian (APPN), Asana (ASAN), BlackLine (BL), LiveVox Holdings (LVOX), RingCentral (RNG), SmartSheet (SMAR), Twilio (TWLO) and Zoom Video Communications (ZM).

Asana (ASAN) was given high marks for having a work-management programs that has led it to have a base of more than 36M users. Meanwhile, Credit Suisse said Zoom (ZM) stands out for being the company that most people think of when it comes to video calls for both personal and work purposes. However, Zoom (ZM) also faces "significant risk" due to competition from the likes of Microsoft (MSFT) and Cisco Systems (CSCO), and the potential for a decline in its annual revenue run rate.

At the bottom of Credit Suisse's new views on small and mid-sized software are Coupa Software (COUP), E2open Parent Holdings (ETWO) and LivePerson (LPSN), each of which got stuck with an underperform, or sell rating.

Coupa (COUP), which specializes in software used for business services such as procurement, payments and expense management, was cited for being "on track" for revenue growth to slow down for the sixth of the last seven years. Still, Credit Suisse said Coupa (COUP) was in a "rare and enviable position" by being able to gain market share while also charging the highest prices among its peers.

Two companies stood out in particular in Credit Suisse's opinion. Datadog (DDOG) was given the overall "Top Idea" for its monitoring and security products, and its efforts to expand into new areas such as application and cloud security.

Meanwhile, Credit Suisse called monday.com (MNDY) a "pacesetter", for its low-code and no-code software that lets people build applications and management tools and for the potential to expand further into the small and medium-sized business customer market.

Earlier this month, monday.com (MNDY) also got some high marks from Loop Capital analyst Mark Schappel, who set a buy rating on the company's stock, and called it a "likely winner" in the market for digital tools.

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