The fundamental analysis of the Software industry: current trends and future expectations

Ing. Rania Yousry Salah Saadeldin

Master's thesis

Abstract:

In this thesis, I am trying to analyse the software industry and discuss current trends and expectations using software companies operating in the USA as a data sample. I used the top-down approach primarily as the main approach for my analysis of the USA's current economic and political situation in the USA and discussed future expectations in terms of assessing economic indicators and economic policies. Then I analysed the software industry in terms of growth, attractiveness, competitiveness using industry economic indicators, Porter's five forces frame work and based on industry reports. I was able to identify growing trends as well as challenges. I chose to analyse Sales force, Citrix, VMware, Zoom, and 8x8 as data samples representing the industry using fundamental analysis methods, which are free cash flow model and Multiples. Based on the analysis, I was able to conclude that the US economy is expected to grow in the upcoming period after rebounding from the pandemic downturn. Despite the low level of political risk, the US and china Tech war is raising the risk to negatively impact the software companies in the future. Based on my industry analysis, I was able to conclude that the Software industry is a growing industry, and despite the last economic downturn in the economy, this industry was growing on its own. It even performed better than all industries due to the high increase of demand as a result of the pandemic and raising awareness of the importance of digital transformation. There are some changing Trends affecting the industry, such as cloud computing, Cyber security, SaaS transformation, Internet of things, artificial indigence, and low code no-code development. In addition, there are some challenges that the industry is facing, such as meeting market demand, data privacy, skill gap, and innovation. From company analysis, I was able to see that some companies were able to gain from pandemic opportunity and those who were ready with SaaS solutions to help customers for quick digital transformation. However, companies that were still in SaaS transformation did not take full advantage of the demand during the pandemic. Companies are expected to grow more only if they have a strong merge and acquisition strategy in addition to increasing cyber security developments, the ability to acquire expertise, and constant investments in research and developments.

Abstract:

In this thesis, I am trying to analyse the software industry and discuss current trends and expectations using software companies operating in the USA as a data sample. I used the top-down approach primarily as the main approach for my analysis of the USA's current economic and political situation in the USA and discussed future expectations in terms of assessing economic indicators and economic policies. Then I analysed the software industry in terms of growth, attractiveness, competitiveness using industry economic indicators, Porter's five forces frame work and based on industry reports. I was able to identify growing trends as well as challenges. I chose to analyse Sales force, Citrix, VMware, Zoom, and 8x8 as data samples representing the industry using fundamental analysis methods, which are free cash flow model and Multiples. Based on the analysis, I was able to conclude that the US economy is expected to grow in the upcoming period after rebounding from the pandemic downturn. Despite the low level of political risk, the US and china Tech war is raising the risk to negatively impact the software companies in the future. Based on my industry analysis, I was able to conclude that the Software industry is a growing industry, and despite the last economic downturn in the economy, this industry was growing on its own. It even performed better than all industries due to the high increase of demand as a result of the pandemic and raising awareness of the importance of digital transformation. There are some changing Trends affecting the industry, such as cloud computing, Cyber security, SaaS transformation, Internet of things, artificial indigence, and low code no-code development. In addition, there are some challenges that the industry is facing, such as meeting market demand, data privacy, skill gap, and innovation. From company analysis, I was able to see that some companies were able to gain from pandemic opportunity and those who were ready with SaaS solutions to help customers for quick digital transformation. However, companies that were still in SaaS transformation did not take full advantage of the demand during the pandemic. Companies are expected to grow more only if they have a strong merge and acquisition strategy in addition to increasing cyber security developments, the ability to acquire expertise, and constant investments in research and developments

Keywords

Software industry trends, Fundamental analysis, Free cash flow model, USA economic analysis, Software companies, Software as a service.

Language used: English

Date on which the thesis was submitted / produced: 7. 1. 2022

Thesis defence

• Date of defence: 2. 2. 2022
• Supervisor: Ing. Dagmar Vágnerová Linnertová, Ph.D.
• Reader: Ing. Lukáš Marek

Masaryk University

Faculty of Economics and Administration

Master programme / field:
Finance / Finance