Software_ Valuation Views 12_30_24 – Software Largely Underperformed in 2024

Industry Overview * Software Industry Performance: The software industry has largely underperformed in 2024, with a year-to-date return of 12% compared to the S&P 500's 25% and the NASDAQ's 31%. * Valuation: The software industry is currently trading at a significant discount to its historical averages. The EV/NTM FCF multiple for the software industry is 36.0x, which is 52% off the peak and 24% below the trailing average. The P/E multiple is 25.8x, which is 12% off the peak and in line with the trailing 5-year average. * Growth: Software trading is 4% above the trailing 5-year average on a growth-adjusted basis. * High Growth Companies: High-growth software companies are trading at an average of 80% of their 52-week high, with an average 2-year sales CAGR of 28% and an average EV/CY25 Sales multiple of 11.3x. * Medium Growth Companies: Medium-growth software companies are trading at an average of 79% of their 52-week high, with an average 2-year sales CAGR of 20% and an average EV/CY25 Sales multiple of 11.5x. * Low Growth Companies: Low-growth software companies are trading at an average of 74% below their 52-week high, with an average 2-year sales CAGR of 8% and an average EV/CY25 Sales multiple of 4.8x. Company Ratings and Updates * Blackline Inc (BL.O): Rated Equal-weight as of September 29, 2024. * E2open Parent Holdings Inc (ETWO.N): Rated Equal-weight as of January 17, 2024. * OneStream Inc (OS.O): Rated Equal-weight as of August 19, 2024. * Vertex Inc. (VERX.O): Rated Overweight as of January 17, 2024. * Amplitude Inc. (AMPL.O): Rated Underweight as of February 1, 2024. * Autodesk (ADSK.O): Rated Overweight as of August 23, 2024. * Freshworks Inc (FRSH.O): Rated Equal-weight as of October 18, 2021. * GoDaddy Inc (GDDY.N): Rated Equal-weight as of July 19, 2021. * HubSpot, Inc. (HUBS.N): Rated Overweight as of March 21, 2023. * Klaviyo, Inc (KVYO.N): Rated Equal-weight as of October 16, 2023. * LegalZoom.com Inc (LZ.O): Rated Underweight as of July 28, 2022. * Liveramp Holdings Inc (RAMP.N): Rated Overweight as of July 15, 2019. * Matterport Inc (MTTR.O): Rated Equal-weight as of April 19, 2022. * Semrush Holdings Inc -A (SEMR.N): Rated Equal-weight as of June 6, 2022. * Sprinklr Inc (CXM.N): Rated Equal-weight as of July 19, 2021. * Sprout Social Inc (SPT.O): Rated Equal-weight as of November 17, 2020. * Wix.Com Ltd (WIX.O): Rated Equal-weight as of May 19, 2022. * Zeta Global Holdings Corp (ZETA.N): Rated Equal-weight as of August 1, 2024. * ZoomInfo Technologies Inc (ZI.O): Rated Equal-weight as of February 1, 2024. * Check Point Software Technologies Ltd. (CHKP.O): Rated Equal-weight as of October 16, 2023. * Cloudflare Inc (NET.N): Rated Overweight as of December 2, 2024. * CrowdStrike Holdings Inc (CRWD.O): Rated Overweight as of January 9, 2024. * CyberArk Software Ltd (CYBR.O): Rated Equal-weight as of January 9, 2024. * Fortinet Inc. (FTNT.O): Rated Overweight as of October 7, 2022. * Gen Digital Inc. (GEN.O): Rated Equal-weight as of June 7, 2024. * Jamf Holding Corp (JAMF.O): Rated Equal-weight as of October 13, 2024. * Okta, Inc. (OKTA.O): Rated Overweight as of December 2, 2024. * Palo Alto Networks Inc (PANW.O): Rated Overweight as of October 10, 2017. * Qualys Inc (QLYS.O): Rated Underweight as of February 9, 2021. * Rapid7 Inc (RPD.O): Rated Equal-weight as of August 11, 2015. * Secureworks Corp (SCWX.O): Rated Underweight as of December 2, 2024. * SentinelOne, Inc. (S.N): Rated Equal-weight as of December 2, 2024. * Tenable Holdings Inc (TENB.O): Rated Equal-weight as of December 2, 2024. * Varonis Systems, Inc. (VRNS.O): Rated Overweight as of October 16, 2023. * Zscaler Inc (ZS.O): Rated Equal-weight as of January 12, 2023. Other Key Points * Morgan Stanley is acting as financial advisor to Secureworks in relation to the definitive agreement for Sophos to acquire Secureworks. * Stock ratings are subject to change. * Historical prices are not split adjusted. * Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated, or Underweight. * Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. * Ratings (or research) should not be used or relied upon as investment advice.