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The ongoing migration of business to the “cloud” is probably one of the most compelling themes in technology.

Cloud solutions have huge tailwinds in the next decade. The chart below shows how cloud solutions are going to get a much bigger bite of the IT budget spending in 5 years.

JP Morgan has just competed a survey of 130 large company Chief Information Officers (CIOs). The survey showed company-specific spending intentions, and offered a comprehensive list of software providers which are standing out positively in the minds of CIOs, and the percentage of IT budgets being spent in the public cloud today and in 5 years.


Currently only 20.1% of IT budgets are being spent on public cloud, but CIOs see this rising powerfully to 43.9% in five years, representing an 17-21% CAGR for public cloud spending, only down one point from the 18-22% CAGR indicated last year. This creates a long and durable growth runway fuelling the unprecedented wave of new software disruptors. That’s why we like the cloud providers large and small.

chart 2

The recent COVID-19 lockdowns have also provided a tailwind for cloud stocks. According to the survey 79% of CIOs agree with the notion that the COVID-19 pandemic will act as a forcing function to make them Digitally Transform and move to Public Cloud even faster than they had planned. 36% will increase their incremental spending in these areas for 2020 and beyond, while due to economic uncertainty 22% will maintain and just 20% will reduce this spend.

Certainly the “Cloud Titans”, Microsoft, Amazon, and Google are huge beneficiaries of IT spending going forward for their cloud products but survey results profile some of the somewhat lesser known companies that will also benefit such as VMWare, Adobe, and Splunk.


So, the trades of the week are:

VMWare (VMW) Market cap. US$61.4Bn.

VMware provides cloud infrastructure and business mobility. Its products include Software-Defined Data Center, Hybrid Cloud Computing, and End-User Computing. It supports modernising data centres, integrating public clouds, empowering digital workspaces and transforming security.

The move to the cloud has been a significant tailwind for VMWare, especially the company's position as a leading provider of hybrid cloud solutions and VMware's anchor relationship with Amazon Web Services for its hybrid cloud offerings. Due to the company's leadership in the data centre market for virtualization, VMware has also been able to attract the likes of Microsoft and Google among others wanting to partner with the hybrid cloud enabler. In addition to the hybrid cloud, VMware's core proposition virtual machines or VMs have seen disruption with containers coming into the play.

An important industry vertical for VMWare’s cloud ambitions is the telecommunications industry. VMware now has significant exposure to the 5G buildout underway. The virtualisation technologies by the company offers an easy way for wireless carriers to upgrade their networks. VMWare provides a way for networking slicing, where multiple virtual networks can be run on the same 5G hardware.

According to the company, VMware has about 60 service providers that now use VMware technology to build their “telco cloud.” Vodafone is a good example but also other telco operators around the world including NTT, Singtel, and AT&T are now using VMware technology.

Adobe (ADBE) Market cap. US$ 204.8BN

Adobe Inc. is one of the largest software companies in the world. The Company's software products allow users to express and use information across all print and electronic media. Adobe offers a line of application software products and content for creating, distributing, and managing information. Known for brands such as Acrobat, Photoshop, and Dreamweaver, Adobe’s customers include content creators and web application developers with its digital media products, as well as marketers, advertisers, publishers, and others who utilize its digital marketing business. Historically Adobe created traditional software packages, but now the company is moving its products to cloud-based versions. Subscriptions now represent some 80% of revenue. Adobe's flagship products, Photoshop and Acrobat, comprise its Digital Media segment and account for about 70% of sales. Digital marketing, about 27% of sales, is ADBE’s next big growth opportunity.

The shift to remote work has driven a surge in demand for digital documents. Usage of web-based PDF services was up nearly 40% quarter over quarter and the number of documents shared in Acrobat increased 50% year over year. Usage for Adobe Sign, its cloud-based electronic signature solution, grew 175% since the start of the fiscal year. Mobile usage was up strongly with Acrobat Reader installations increasing 43% year over year and Adobe Scan installations, up 66% year over year.

Adobe’s Creative Cloud boasts a solid mix of the largest enterprises as well as presence in the mid-market and with boutique creative professionals which makes that segment resilient in this environment. With more activity being pushed through Adobe.com the company is less dependent today than others are on the” in-person” handshake in order to close a deal, even on the high end.

During the second quarter, Adobe recorded historic highs in Adobe.com traffic across both Creative Cloud and Document Cloud. Demand for its professional video products was particularly high with strong engagement for Adobe Premiere Pro and After Effects. There was a 75% Q/Q increase in monthly active users for video editing software Premiere Rush. Mobile traffic, member sign-ups, and monetization continue to accelerate. Adobe Fresco has seen a greater than 40% increase in downloads since the start of 2020. Photoshop Express has surpassed 20 million in MAUs.

Splunk (SPLK) Market cap. US$31.2Bn

Splunk is a data analytics “pure play” that offers software products for searching, monitoring, and analysing machine generated big data within the enterprise.

Splunk’s value proposition is to make machine data accessible, usable and valuable to everyone in the enterprise. Machine data is one of the fastest growing and most pervasive segments of ""big data"" — generated by websites, applications, servers, networks, mobile devices and all the sensors and RFID assets that produce data every second of every day. By monitoring and analysing everything from customer clickstreams and transactions to network activity and call records, its software sifts through these largely unstructured digital data sources and provides a management tool to get a sense of transaction activity, system performance, security threats and fraudulent activity. In fact, Splunk’s Cloud is the industry's only enterprise-ready cloud service for machine data at this point in time.,

In its most recent earnings release the company stated that its target of the cloud accounting for 60%-plus of bookings by the end of FY23 is "starting to feel like that might be a bit low," CFO Jason Child said adding that the company will reassess that later this year. CEO Doug Merritt had said the company was ahead of schedule, noting that they had seen a faster shift to cloud in 1Q and into 2Q amid the coronavirus pandemic.

In fact, the company saw an increase in Splunk Cloud because of its faster time to value proposition as businesses secured remote workforces; Q1 Cloud annual recurring revenue growth (ARR) accelerated to 82% Y/Y from 80% Y/Y last quarter. Splunk also noted that cloud as a percentage of Total Contract Value (TCV) bookings came in at 44% vs. 25% for the first quarter of last year, underscoring the faster-than-expected cloud transition Total ARR, which we think is the best metric to cut through transition noise, grew 52% Y/Y), trending above the full year ARR growth target of 45% and the 40% ARR CAGR the company expects through FY23.

These are three high quality companies benefitting from both the COVID-19 lockdown pushing more and more activity towards cloud- based solutions and also the secular trend towards a significant increase in company spending in migrating processes to the cloud from businesses large and small.

For more information on new trade opportunities call the team on 1300 720 292.  



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