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Wall Street Transcript Interview with Mark Moerdler, Ph.D., Senior Research Analyst at Sanford C. Bernstein & Co.: M&A Expected to Continue in Business Application Software Sector

67 WALL STREET, New York - December 17, 2012 - The Wall Street Transcript has just published its Business and Application Software Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Application Software Consolidation Activity - Cloud Computing and SaaS Trends - Health Care Transition to ICD-10 - Outsourcing and Offshoring Trends

Companies include: VMware, Inc. (VMW), Microsoft Corporation (MSFT), SAP AG (SAP), Hewlett-Packard Company (HPQ), Dell Inc. (DELL), CA, Inc. (CA), Salesforce.com (CRM), Adobe Systems Inc. (ADBE), Apple Inc. (AAPL), Citrix Systems, Inc. (CTXS)

In the following excerpt from the Business and Application Software Report, an expert analyst discusses the outlook for the sector for investors:

TWST: If you're investing in software, what are the most important metrics you should be sure to understand and evaluate?

Dr. Moerdler: It's a lot more complex than it used to be because of the different moving parts. You have the cloud, which is the growth part of software at this point, in which the metric you need to consider is not just simply revenue growth, but what's the potential and the trajectory for margin improvement and GAAP earnings. Because at some point, companies in this space are going to start to slow, and when they do, the fact that they are GAAP negative is going to become a problem because a lot of the difference between pro forma and GAAP is coming from options and they won't be able to use options. So then they're going to have to pay people money so that pro forma goes down and becomes more like GAAP.

With software as a service, in general, you need to understand not just the revenue, but you need to understand the churn. You need to understand how their pricing compared to on-premise and the revenue from a client over the life of the relationship as well as the higher churn.

And in terms of on-premise software companies, the traditional metrics of margin and EPS and cash generation are important. We think it's very important to understand where the disruptive technologies are and how they're going to affect the company, positively or negatively, because software, even though parts of it are very sticky - like an accounting or ERP system can be very, very sticky and very difficult to dislocate - nonetheless there is still a large portion of software which the corporate and the consumer client can move from product to product.

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.