Monthly Archives: November 2016

Revisiting Competitive Positioning

Taken from McKinsey, Valuation

  • Consider competitive retaliation in response to new tactics
  • Creating new services / products have the highest value creating potential (versus taking share from others)
  • Higher value add is persuading consumers to buy more of a product / service
  • High growth is difficult to sustain

Revisiting Value Frameworks

Several Key Focus Areas, pulling from Margin of Safety and Common Stocks, Uncommon Profits and the Most Important Thing

  • Typically would ask: What’s wrong with it? (if presented an undervalaued asset)
  • Need to assess the market’s apetite for risk, and stance towards risk aversion (with respect to the capital market line)
  • Observe¬†core / systemic business weakness versus market over-reactions: why are companies undervalued? When will they rebound?
  • Constantly evaluate: what is the business worth?
  • Recall that markets are¬†infefficient (institutional constraints)
  • Understand credit cycles
  • New product initiatives are a good time to continue increasing observations of a company
  • Evaluate management incentives
  • Evaluate market and relevancy of products vis a vis market
  • How sensitive are customers to pricing?
  • What will competitors do in reaction to different courses of action?
  • What is the volume outlook for a business?
  • Analytical observe market sentiment for industry and individual company
  • Observe: capitalization, financial position, breakdown of sales, competitors, insider ownership, margins

Unboxing Core Themes

General Themes

  • White box hardware

Red Hat

  • Acquisition of 3scale for APIs
  • RHEL is currently the cash cow
  • JBoss Middleware enables applications to speak together
  • OpenShift PaaS / rapid application development through microservices (PaaS)
  • OpenStack:

Amazon

  • Mix shift to higher profitability cloud, which is expected to be the highest portion of revenue
  • Moving upstream from SMB to enterprise
  • At recent event, had GM, Coca Cola speak, speaking to effectiveness of enterprise strategy
  • Most developers prefer AWS
  • Aurora is gaining traction (SQL database)
  • RedShift has solid traction (data warehouse)
  • Workspaces competes with VMWare and Citrix
  • Solid security in public cloud
  • Roll-out of QuickSight
  • Chosen by GuideWire for IaaS
  • Chosen by Salesforce as preferred IaaS hosting

Best-In-Class Offerings

  • ServiceNow: opportunity to also penetrate ITSM market; very strong customer renewal rates
  • ServiceNow: current beachead in service management (incident, problem, service catalog); moving to operations management (servers, application, storage, virtualization, cloud, network) – this model enables ServiceNow to penetrate a business model typically dominated by incumbents (IBM, CA, Microsoft, BMC)
  • Workday: opportunity to move down-stream to penetrate SMB market; incumbents (Oracle, SAP) slower to move to cloud)
  • Other higher growth opportunities include marketing / customer service targeting SMB space: Hubspot (inbound marketing); Zendesk (leader in customer services software)
  • Slow GDP growth resulting in investments in front office
    • Accounting / Enterprise / ERP
    • Productivity Applications
    • Sales and Marketing Applications

Market has had a defensive posture this year, positively benefiting infrastructure players

  • Red Hat
  • Oracle
  • VMWare

Value Play: BI / Analytics Uncertainty

  • Larger players increasing competition for the likes of Tableau with fears of Microsoft, Qlik, and Amazon (QuickSight) getting in the way

Red Hat Overview

Industry

  • Faster innovation cycles
  • Increased security

Positives

  • Unique open source business model
  • Low cost technology
  • Anchor: Red Hat Enterprise Linux
  • Growth lever is OpenStack adoption + storage / middleware (JBoss) + PaaS (OpenShift)
  • Positioned to be leader of OpenStack movement
  • Positioned to deliver OpenStack across AWS and Azure
  • Increasing deal sizes
  • High renewal and fast growing renewal rates

Risks

  • Susceptible to decreased IT spend (in poor economic environment)
  • Ability to de-throne Microsoft
  • Growth is driven by non-RHEL products
  • Move to public cloud could make AWS linux more appealing
  • Most customers are from indirect sales channels
  • New products being adopted slower than expected

Updates

  • Increased headcount this year