William Blair Issues Top Technology Picks for 2015 (FB), (ARMH), (FFIV) (more...)

William Blair released its 2015 Top Picks for the Technology Sector, along with its sector outlook. The firm identified eight stocks, one for each analyst and subsector - digital media, software-as-a-service, data analytics, IT systems, communications equipment, IT/BPO services and semiconductors and wireless, cybersecurity and security technology, and Internet infrastructure and communications services - that they believe have the potential to outperform the broad equity market benchmarks in 2015.

Top Picks:

Facebook (NASDAQ: FB) - "We believe Facebook could continue to increase the amount of video ads served in its news feed during 2015, potentially driving upside to Street revenue estimates. We estimate news feed video CPMs could reach $15, or about three times the estimated news feed display ad (current product) CPMs of $5. A private company working with Facebook on its on-site video advertising business believes Facebook can scale it to $1 billion annually." It was added, "Facebook’s monetization of Instagram could accelerate in 2015, in our view" The firm also believes Facebook could begin to generate revenue by serving advertisements off of its owned and operated sites using its data for targeting and its DSP Atlas for ad serving.

ARM Holdings, Plc (NASDAQ: ARMH) - "We believe ARM is set up well to outperform lowered expectations over the next 12 months for the following three reasons: 1) reacceleration of royalty revenue, 2) favorable catalysts around ARM-based processors in the data center and enterprise networking markets, and 3) continued margin expansion as the company benefits from the leverage in its model." The firm expects ARM's royalty revenue to revert to 20%-plus year-over-year growth in 2015.

F5 Networks (NASDAQ: FFIV) - "We believe that F5 will emerge as a secular winner in data center and service provider networks, with the ADC market proving more resilient than expected, F5 seeing success from a simplified pricing approach, and incremental contributions from new products." It was added, "The increasing number of headline-grabbing security breaches, particularly at large financial institutions, is causing more customers to enable F5’s security modules as a second, third, or fourth line of defense."

Splunk (NASDAQ: SPLK) - "Disruptive market leader. Splunk has established itself as a leading provider of machine data analytics products. We believe the company’s proprietary indexing engine, search language, and rapid time-to-value will allow it to continue disrupting legacy vendors in established use-cases (e.g., security) and driving rapid adoption in greenfield use-cases." The firm also noted: New low price strategy, Security emphasis in 2015 and Enterprise opportunity.

Demandware (NYSE: DWRE) - The firm said Demandware is benefiting from strong secular shifts. "Demandware is squarely positioned to benefit from the emergence of two powerful trends: e-commerce and the cloud. The online channel is becoming increasingly pervasive and outpacing growth in the overall retail market by more than fourfold, yet it still represents less than 12% of discretionary spending in the United States, and we believe it has numerous years of double-digit growth ahead. With the proliferation of mobile devices and disruption caused by marketplace vendors such as Amazon (AMZN $338.64; Outperform) and Alibaba (BABA $111.64), the share gains have accelerated, causing retailers and brands to increasingly view their e-commerce platform as mission-critical to their survival." The firm also noted: Dominant SaaS player, Large replacement opportunity, High retention and visible model and the company being a Logical takeout candidate for Oracle (NASDAQ: ORCL) or salesforce.com (NYSE: CRM).

Cogent Communication (NASDAQ: CCOI) - "The company has a favorable recurring dividend policy and increased its capital return program in 2014. Cogent’s board of directors thus far in 2014 has increased its dividend to $0.31 per share from $0.16 at the end of 2013. The recurring dividend yields 3.6% annually to investors. In addition, the board has enacted a policy that will return an additional $12 million per quarter (up from $10.5 million per quarter) to shareholders either through a special dividend or a share buyback. This policy will be in effect until Cogent’s net-debt-to-trailing-12-month-EBITDA ratio reaches 2.5. At the end of the third quarter of 2014, this ratio was at 2.2. Through the first three quarters of 2014, Cogent has returned a total of $88 million, 5% of Cogent’s market capitalization, to shareholders through the combination of the regular dividend and the capital return program. We expect that from the second quarter of 2014 to the end of 2016, Cogent will return $450 million to shareholders through share repurchases and dividends." The firm also noted: Cogent has one of the highest-quality global IP backbones, The addition of customers to buildings already on its network allows Cogent to attain significant operating leverage, We estimate that margins will expand further in 2015 on 11.0% top-line growth, Potential for positive regulatory developments in 2015.

Broadsoft (NASDAQ: BSFT) - "We believe the time is right for BroadSoft to finally break out next year, with much improved visibility into its project pipeline, record billings, and professional services activity ramping up—a leading indicator of future customer service launches and license sales," the firm said. "We expect the company to adhere to its 20/20/20 vision for 2015: i.e., 20% top-line growth, 20% earnings growth, and 20% operating margin,:" it was added.

Calamp Corp. (NASDAQ: CAMP) - "The machine-to-machine/Internet-of-things (M2M/IoT) market is expected to grow significantly—while varied forecasts make it difficult to narrow down, the need for increasingly ubiquitous devices to be monitored is undeniable, in our opinion; we project mid- to high-teens long-term growth opportunity in the company’s core business," the firm said. It was added, "Opportunities exist for market share gains in the MRM (mobile resource management) space in the areas of fleet/asset tracking, stolen vehicle recovery, location-based services, and workflow management."

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