Prospecting for Tech Gains

03/19/2014 10:00 am EST

Focus: STOCKS

Rob DeFrancesco

Founder, Tech-Stock Prospector

Rob DeFrancesco, editor of Tech-Stock Prospector, reviews his portfolio and highlights several leading technology stocks that recently reported both strong quarterly earnings and guidance.

Steve Halpern: Joining us today is technology sector expert, Rob DeFrancisco, editor of the Tech-Stock Prospector Newsletter. How are you doing today, Rob?

Rob DeFrancesco: Hi, Steve. Doing well, thanks. How about yourself?

Steve Halpern: Very good. Now you follow the full spectrum of high-tech companies, but today we're going to focus on a group of firms that have reported strong fourth quarter earnings and have also issued strong earnings guidance, so let's begin with one of the companies you like. It's called Workday (WDAY).

Rob DeFrancesco: Yeah, it did come up. It was a strong Q4 earnings season and a lot of these names, particularly the momentum names in software, did well. Workday, which provides cloud-based human resources and financials software competes with legacy vendors like Oracle (ORCL) and SAP (SAP).

They had revenue growth of 74%, driven by subscription revenue of 86% and the stock ran up to 116. It's pulled back now to around 103. The numbers were great. Back log of over 600 million plus unearned revenue of over 400 million and they're looking for 2014 revenue growth of 54%.

Then, another name similar competes is NetSuite (N), which does something similar to Workday, in the same area, but it concentrates on some smaller companies. Workday tends to go after larger enterprises.

NetSuite had Q4 revenue growth of 37%, which is the best performance since Q4 of '08 and, actually, in 2013, was the fourth consecutive year of accelerated top line growth, 34% versus 31% in 2012. They're looking at a little slower earnings revenue growth, 30% in 2014 and that stock has also come down.

That was up to $120, back around $100. The thing is, a lot of these first quarters tend to be a seasonally slow quarters for techs so we may get more of a pullback if expectations are high going into the Q1 numbers, but we may get a better entry point for some of these stocks.

Steve Halpern: Now, you also like a company called Splunk (SPLK). Can you tell us what that company does?

Rob DeFrancesco: Splunk provides a software that analyzes machine data. It's a big data play, or Internet of things, so analyzing any type of—even something like manufacturing facilities and you can even analyze flow of elevators in buildings to see where—just basically any type of tick data where you're analyzing information for a machine.

They reported Q4 revenue of 53% growth and they now have 7,000 customers. They added record of 500 in Q4 and the revenue this year is expected to be up over 50%.

And that's another one where it went right up to around 106, back down to around 85, so that's another example of one that's pulled back but still has strong growth potential.

Steve Halpern: Okay. Next on your list is a company called ServiceNow (NOW). What's the attraction there?

Rob DeFrancesco: ServiceNow is disrupting the IT management space. They're cloud-based. They're going against legacy vendors like BMC (BMC). And ServiceNow, that's another strong revenue grower, up 50% expected for this year, 38% for next year.

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Now this stock hasn't come down that much. It's around $67 and a half, down from $72 high. That's another example of a cloud company disrupting a legacy vendor.

Steve Halpern: Another buy recommendation you have is Tableau Software (DATA). Could you tell us about that company?

Rob DeFrancesco: Yeah. In the business intelligence analytic space, Tableau sells software—data visualization software—so enterprises can analyze data and see it in a visual format, give it a better analytic capability. They had accelerator revenue growth in each quarter of last year and, in all of 2013, revenue rose 82%.

They're getting bigger so they're not going to be able to put up that kind of revenue growth anymore but they're looking for 40% growth, their guidance at the high end this year.

I think they could probably do closer to 50% and they have-they're competing, also, against legacy venders and taking share there. That's another one; that stock was above $100 and now it's back down to around $90.

Steve Halpern: Now finally, there's a company called Nimble Storage (NMBL). What do you like about that?

Rob DeFrancesco: Well, Nimble is a flash-optimized storage platform and also a cloud-based storage management product. Another example of disrupting storage going up against legacy venders EMC and Net Apps, and they just went public in December at $21.

The stock has done well so I wouldn't chase it. This is another one where I prefer to wait for a pullback, but revenue last year was up over 130% from a small base—$125 million they did last year—and they're looking at fiscal 2015 January revenue of around 60%, so that's a name where if you get more of a pullback, that would be more attractive.

Steve Halpern: Now finally, we only have a minute, but you mentioned in your latest newsletter that you have two special situation ideas; Riverbed (RVBD) and Infoblox (BLOX). Could you briefly tell us about those?

Rob DeFrancesco: Yeah, well, Riverbed is—they got a takeover offer from Private Equity at $21 a share and they rejected it, they're involved in WAN optimization and they just did a big acquisition last year of OpNet. They're still trying to integrate that, but I think that it's, supposedly, people are saying Riverbed is in play.

I don't know, if they get an offer in the mid-20s, that might be something that they would look at but, so far, they rejected the $21 from Elliot as inadequate.

Infoblox had a huge pullback, came back down from its high of around $49, down to around $17 in February because they missed a quarter and guided down, but I think it's mainly around execution issues.

They provide solutions for IP address management and DNS security, so this is a small company, and so, it's a little lumpy on their big deal flow, but if they can close a couple of these big deals that were delayed out of the latest quarter, that could be a rebound play into the upper $20s. It's trading in the low $20s right now.

Steve Halpern: Well, we appreciate your time today. Thank you.

Rob DeFrancesco: Okay, thanks, Steve.

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