$9.00 february 11, 2015 buy ( ilya grozovsky $8 · 2017-12-21 · social commerce keeps growing....

Please see pages 14-17 for Important Disclosures 1

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Technology

Bazaarvoice Inc. February 11, 2015

Ilya Grozovsky 212.417.8219 [email protected]

BUY (BV, $8.22)

A Voice Crying Out In The Wilderness - Initiating With A BUY Rating & $10.50 Price Target. Investment Conclusion . We are initiating coverage of Bazaarvoice (BV) with a BUY rating and $10.50 price target. In our view, the company’s platform holds many of the

keys for retailers and brands to compete in today’s social commerce era. Brands and retailers dependency on social commerce continues to grow and is projected to account for $15 billion in sales in 2015. Products and brands that have reviews and ratings have

been shown to differentiate their products and to provide a lift in page views and increased sales, as a result, Bazaarvoice’s platform, with its network effect of

syndication, has become essential for any brand or product. These trends coupled with new products and improved customer retention should drive accelerated growth for Bazaarvoice going forward and translate to adjusted earnings before interest, taxes,

depreciation and amortization (EBITDA). We are forecasting calendar 2014 revenues and adjusted EBITDA of $186 million and a loss of $17 million, respectively. For calendar

2015, we are estimating revenue and adjusted EBITDA of $212 million and a loss of $3 million, respectively. For calendar 2016, we are estimating revenues and adjusted EBITDA of $241 million and a positive $19 million, respectively. Our price target of

$10.50 per share is based on our belief that Bazaarvoice shares should trade in line with the comparable company average Enterprise Value/Sales (EV/Sales) ratio of 3.0x as

compared to the current 27% discount. The 27% potential upside to our price target results in our BUY rating on the shares.

Source: Company Reports, National Securities Corporation Estimates

Company profile

Bazaarvoice, Inc., founded in 2005 and headquartered in Austin, Texas, connects businesses

together to amplify the voices of people where they shop. The Company’s solutions, which are

primarily provided through Software as a Service (SaaS) platform and are offered as a

subscription basis, enable clients to capture and display online word of mouth about specific

products and services, channel content into all the places where it will influence a purchase both

within and outside its network and use business insights so they can act on what consumers want.

The company currently serves over 3,000 global clients in diverse industries.

Ticker BV F2014A F2015E F2016E

Latest Price $8.22 1Q -5A -5A NA

Mkt. Cap ($m) $637 2Q -5A -2A NA

Enterprise Value ($m) $583 3Q -4A -2E NA

Fiscal Year End 12/31 4Q -8A -4E NA

Rating BUY Annual ($22) ($14) $6

Price Target $10.50 EV/Adj. EBITDA NM NM NM

Shares Out (mil) 78.1

52-week high $8.75 Revenues $168 $191 $226

52-week low $5.85 EV/Revenues 3.5x 3.0x 2.6x

Avg. Daily Vol (mil) 0.430

*A = Actual

Adjusted EBITDA & Revenues ($M)

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National Securities Corporation Technology

February 11, 2015 2

Consumers trust other consumers more than brands. The Internet and mobile device

proliferation has made it increasingly easy for consumers to get input from other consumers

prior to making any purchase, 70% of consumers browse through reviews prior to making a

purchase. Consumers trust other consumers — and the more opinions and testimonials a

product has, the more it stands out from competing products. A leading website such as

Zappos.com reports, which is owned by Amazon (NASDAQ: AMZN $372.99, Not Rated) that

10% of its consumer traffic comes from social networks.

Social commerce keeps growing. Social commerce (getting other people’s advice prior

to buying something) is projected to account for $14 billion in sales in 2015 in the US (up

from $3 billion in 2012, a CAGR of 47%) according to Invesp.com. There is still significant

opportunity for growth in this area as social commerce sales in 2015 are projected to only

account for 5% of total ecommerce sales of $280 billion according to Forrester Research.

Positive reviews for products are so important that they can increase the price of an item by

9.5% and increase conversion rates by 4.6% according to a Reevoo survey.

Bazaarvoice is the market leader in social commerce. Bazaarvoice is the clear market

leader in the social commerce area and is significantly larger than the companies it

competes with directly. Larger companies, such as Facebook (NYSE: FB $75.19 Not Rated),

Twitter(NASDAQ: TWTR $46.26, Not Rated), and Google (NASDAQ: GOOG $536.94, Not

Rated), do not participate in this market space. The advantage being the biggest company

in this segment translates to having more customers on its platform (and syndicating

reviews from brand to many retailers) which gives Bazaarvoice a significant competitive

advantage as each review can reach consumers in multiple ways.

Attractive and highly scalable business model. Bazaarvoice generates the vast

majority of its revenues through fixed commitment subscription contracts which are tied

into the number of products used by its customers and the usage volume of its customers.

Clients spend an average of $150,000 annually on the services and are billed on annual,

quarterly or monthly basis though contract term is typically one year. Importantly, The

company delivers its solutions over the cloud, as a result it is highly scalable and the

company’s solution is also flexible enough to meet specific client requirements.

Bazaarvoice focuses on client retention. In order to maximize the lifetime value of its

client relationships there is a significant focus on client retention. The company’s client

retention rates have steadily increased from 80% in FY2007 to 88% in the most recent

fiscal year (FY14). We believe that retention rates will continue to improve in FY16 and

FY17 and approximate 90%. Our computation of client retention is based on clients lost

during each year compared to the total client count at the beginning of that year.

New Product offerings will help accelerate top line growth. While rating and reviews

is the largest product in Bazaarvoice’s business, the company has added several new

product offerings that we believe will help accelerate the top line growth of the company.

Local, Curations, and Sampling should all be additive to revenues as they continue to take

hold with customers.

Establishing estimates for calendar 2014-2016. We are estimating calendar 2014

revenues and adjusted EBITDA of $186 million and a loss of $17 million, respectively. For

calendar 2015, we are estimating revenue and adjusted EBITDA of $212 million and a loss

of $3 million, respectively. For calendar 2016, we are estimating revenues and adjusted

EBITDA of $241 million and a positive $19 million, respectively.

We are initiating coverage with a BUY rating and a price target of $10.50 per share

based on our belief that Bazaarvoice shares should trade in line with the comparable

company average EV/Sales ratio of 3.0x as we believe it will grow its sales faster than the

peer group average in calendar 2016. The company currently trades at a 27% discount to

the group’s average EV/Sales ratio. Our $10.50 price target would yield a return of 27%

and as a result we rate the shares a BUY.


February 11, 2015 3

MARKET OPPORTUNITY

First there was commerce, and then came e-commerce, and now we are fully in the age of

social commerce. Social commerce is a subset of e-commerce that involves social media and supports social interactions where the users, themselves, contribute and assist online

shopping. Tools that are used to facilitate these interactions are user ratings and reviews, shared shopping lists, and other means of advice. From a company’s perspective, social commerce helps to engage customers with their brands, provides an incentive to return to

their website, provides a platform to speak about their product, and provides customers with information necessary to compare, research, and choose their product over the

competition.

The desire and ready availability of people to get input from others prior to making a

purchase has made social commerce a fast growing phenomena. US social sales are projected to increase to $14 billion in 2015 (up from $3 billion in 2012, a CAGR of 47%)

according to Invesp.com. Importantly, social commerce sales in 2015 are projected to only account for 5% of total e-commerce sales of $280 billion according to Forrester

Research.

Positive advice leads to positive sales. Reviews have become an essential tool in e-

commerce and have proven to effect transactions in a positive way. According to a Vebology survey, 70% of customers browse through product reviews before making a

purchase and 97% of online reviews are considered as genuine and improves the product credibility, 75% of customers say that positive reviews make them trust a business more.

Positive product reviews can increase the price of an item by 9.5% while a negative review has an 11% chance on changing a person’s intent to purchase, according to an Invesp.com survey. But most importantly, according to a Reevoo survey, a product with

50 or more reviews translates to a 4.6% increase in conversion rates.

Social applications are driving sales. Many e-commerce websites have integrated

social commerce features into their sites (see Figure 1) and social sites like Facebook, Pintrest, and Twitter are driving a significant portion on online sales. As an example,

Zappos.com reports that over 10% of its traffic comes from social networks, Nike.com (NYSE: NKE $92.75, Not Rated) 8.4%, Nordstrom (NYSE: JWN $79.26, Not Rated) 8.3%,

according to a survey by Invesp.com. What is happening at the social sites that are driving these consumers to online retailers is the social interaction, recommendations, reviews, customer’s feedback that has become an essential part of the shopping process.

We believe that as more companies come to terms with this trend the amount of marketing dollars spent on this area will grow.


February 11, 2015 4

Figure 1

Source: Invesp.com Survey

The market opportunity is difficult to quantify but we are not deterred. Despite the surveys and positive trends, the social commerce market is in its early stages and

difficult to size appropriately. We believe that money that companies traditionally spent on advertising is increasingly shifting to technology which leads us to believe that this is a

multi-billion dollar market opportunity and that the return on investment that is delivered to companies more than justifies the market opportunity. As a result, Bazaarvoice competes for clients dollars with customer relationship management (CRM) applications as

they are currently thought of by clients as in the same budgetary line. We are encouraged that this will be a continued area of focus for retailers and manufacturers as a

recent Gartner survey of Chief Information Officers (CIOs) indicated that 43% of marketers felt that connecting with customers was their biggest challenge followed by competition (36%) and revenue/profit growth (33%). The same Gartner survey indicated

that mobile marketing and digital advertising would see the highest spending increase in 2015 (current digital advertising currently the largest share of the advertising budget but

only approximately 12%). As a result of these trends and forward looking surveys we believe that marketing dollars will continue to flow to social commerce and Bazaarvoice will be a beneficiary.

Mobile devices make social shopping easy. Internet-enabled mobile devices have dramatically increased the ease of accessing social networks globally. Importantly, consumers now have information in their hands, even while in stores, that can help them

make purchasing decisions with social shipping. A recent survey by Retale found that 96% of consumers (that owned a mobile device) plan on using their mobile device to

compare and research products and 61% will research products online while in the store. Comparison shopping apps for mobile platforms have also proliferated, further driving their use as a decision support at the point of purchase.

A random sample of product reviews, (see Figure 2) from March 2012 and January 2015

illustrates the growth in popularity of product reviews. The growth of the reviews in many product examples has a compounded annual growth rate (CAGR) of greater than 100%

0%

20%

40%

60%

80%

100%

Most Popular Integrated Social Commerce Features

Top 25 Web Sites

Other Web Sites


February 11, 2015 5

which, we believe, provides ample support for our belief that consumer reviews continue to grow in importance for any brand that intends to be competitive in the marketplace.

Figure 2

Source: Vendor Product Review Pages, National Securities Corporation

BAZAARVOICE PRODUCTS

Conversations. The heart of Bazaarvoice’s platform is Conversations. This platform collects and leverages ratings and reviews, questions and answers and stories from the client’s customers. People love to talk about what they buy, and when they do, other

people also then buy. Ratings and reviews capture those conversations on client’s sites which helps to increase sales, decrease product returns, and build trust in the brand. Essentially, company’s let their customers sell for them by gathering their opinions,

photos, and videos and sharing them with people. An important side benefit from these conversations with customers is the company’s ability to learn from this feedback to

improve its products and services based on real world feedback.

The platform gives sellers the ability to answer shoppers’ questions directly which helps the shopper with their purchase decision. All of the conversations content can be syndicated to social media such as Facebook which keeps the Facebook page fresh and

can attract new customers there too. All of this data is tied together with real time analytics which allows for better decisions by Bazaarvoice’s clients.

Bazaarvoice’s core Ratings and Review platform is used by virtually all of the company’s

enterprise clients. The offering helps retailers and brands manage customer ratings and

March-12 January-15 CAGR

Walmart.comWeslo Cadance G5.9 Treadamill 583 915 17%

Graco - Lauren Fixed Side Crib 477 593 8%

Best BuyHP Photosmart Printer 155 2,631 173%

Garmin Nuvi GPS 84 1,461 175%

Insignia TV 547 1,754 51%

Expedia.comHilton Fiji Beach Resort & Spa 112 800 101%

Omni San Francisco 543 2,660 76%

Opentable.comGramercy Tavern 596 4,433 104%

Huggies.comLittle Movers Diapers 7,346 9,837 11%

Pure & Natural Diapers 3,022 5,979 27%

American Express.comGreen Card 176 2,331 150%

Samsung.comGalaxy S Phone 786 1,705 32%

Random Review Volumes


February 11, 2015 6

reviews for their websites. As part of the service, Bazaarvoice provides moderation services that ensure that reviews are relevant, legal, and authentic. Bazaarvoice also attaches pre-defined labels to categorize online word of mouth to enable syndication,

analytics, and improved SEO capabilities. The platform is sold on a subscription basis with pricing typically correlated to the number of impressions and modules purchased. The

company invoices its customers on varying billing cycles, including annual, quarterly, and monthly customers.

Connections. The Connections platform allows clients to respond to shoppers questions. This interaction is generated right from the product page and is done in real-time. The

response to questions help in the purchase decision and is published for future shoppers to see. Bazaarvoice has over 200 retailers in the Connections network and is offered as a

free service or a paid service. The free service allows retailers to answer shopper’s questions and to view up to 25 customer reviews across the Bazaarvoice network. The premium service allows for unlimited review viewing.

Local. This service is targeted toward local service oriented businesses. These businesses get reviewed at third party review sites (such as Angie’s List and Yelp (NYSE: YELP $44.66, Not Rated)) but those are not optimal for the local business as these sites

allow and encourage advertising as they are ad driven models. As a result reviews are listed alongside advertisements for the business’s competitors who are willing to pay to

advertise when people do research on a specific local business.

Curations. Bazaarvoice’s newest product, allows customers (brands and retailers) to source visual or social conversation from all the major social media platforms (Facebook, Twitter, Instagram, etc.). These can then be displayed side-by-side with ratings and

reviews. The difference versus the traditional product is that this is live user generated content from social media and no longer needs to send a user to a social media website to

see the user-generated content which minimized distractions and can aid in sales.

Media. Bazaarvoice Media allows for shopping or retail sites to add substantial incremental revenue and influence shoppers while they're most engaged and ready to

make a purchase. While shoppers are researching, comparing, and in the process of making a purchase customer’s advertisements are shown to the buyer. From the retailer’s perspective this provides an additional revenue stream and the ability to

monetize shoppers who even do not make a purchase on their site.

COMPETITION

Bazaarvoice is the clear market leader in ratings and reviews. Its closest competitor is

Power Reviews which it Bazaarvoice was forced by the Department of Justice to divest in January 2014 (see next paragraph for more details). The competitive landscape includes

vendors who specialize in toolsets similar to Bazaarvoice such as (PowerReviews, Reevoo, Pluck, Yotpo, eKomi) to software platforms for social network monitoring and social

marketing (Lithium, Buddy Media, Jive (NASDAQ: $6.09, Not Rated), Salesforce.com (NASDAQ: CRM $58.79, Not Rated) through its acquisition of Radian6) and prominent internet brands like Google, Twitter, and Yelp, all of whom offer social networks, but are

not necessarily focused on gathering and syndicating consumer feedback on products.


February 11, 2015 7

Divestiture of Power Reviews returns a competitor to the market place. In May

2012, Bazaarvoice agreed to acquire its biggest competitor Power Reviews Inc. in a cash and stock transaction valued at $152 million ($31 million in cash and the remainder in

stock). The company was subsequently sued by the Department of Justice for anti-trust violation as the deal was alleged to be anti-competitive. After a trial in January 2014, Bazaarvoice was found by a judge to have violated anti-trust regulations by purchasing its

closest and only serious competitor, creating the likelihood of an anticompetitive effect in the ratings and review market in the United States. The company was ordered to divest

itself of Power Reviews and to provide it with syndication services for four years. In July 2014, the company sold Power Reviews to Wavetable Labs LLC for $30 million. As a result, Power Reviews is once again a competitor and active in the market place though as

a private company not much about its revenues and market share is known.

Network effect differentiates Bazaarvoice. Consumers trust other consumers — and

the more opinions and testimonials a product has, the more it stands out from competing products. With that in mind, Bazaarvoice’s network platform, of 3,000 users, allows

participants (its customers) to collect user-generated content about the products or services on their site and then distribute the content to channel retail partners to increase

overall review volume. Syndication enables increasing review volume, improving product coverage, and therefore selling more successfully through their retail channels. The sheer

size of Bazaarvoice’s network creating a significant barrier to competition as smaller competitors cannot match Bazaarvoice’s syndication effort which turns a single consumer opinion into a plethora of impressions.

MANAGEMENT

Gene Austin became the CEO of Bazaarvoice in January 2014 after servicing as the company’s President. Prior to coming to Bazaarvoice, Mr. Austin served as president and

chief executive officer of Convio, Inc. Prior to Convio, Mr. Austin was BMC Software's vice president and general manager of Enterprise Data Management and previously worked at

Dell as vice president and general manager of Internet Servers. He also served as senior vice president of sales and marketing at Careerbuilder.com. Mr. Austin holds an MBA from Washington University in St. Louis and BS in Engineering Management from

Southern Methodist University in Dallas.

Jim Offerdahl, CFO, most recently served as CFO at Convio Inc., prior to Convio, Mr.

Offerdahl was president and chief executive officer of Traq-Wireless, Inc., and chief

operating officer and chief financial officer of Pervasive Software, Inc. Mr. Offerdahl also served as chief financial officer and vice president of Administration of Tivoli Systems, Inc., (which was acquired by IBM (NYSE: IBM $158.56, Not Rated). Mr. Offerdahl holds a

B.S. in Accounting from Illinois State University and an M.B.A. in Management and Finance from The University of Texas at Austin.

INVESTMENT RISKS

Pricing pressure in core review category. Bazaarvoice’s customers spend an

annualized average of $147,000 in fees for the company’s service. While the company has been able to grow the annual average revenue per client from $132,400 in FY2010 it


February 11, 2015 8

has seen some decline since its peak in FY2014 of $157,700. The vast majority of the company’s revenues are driven by the ratings and review products. We believe that the average revenue per client will continue to improve from current levels but if it stays

unchanged or declines Bazaarvoice’s path to profitability will be hampered.

Ability to evolve beyond rating and reviews. Bazaarvoice generates approximately 95% of its revenues from its Conversations product (rating & reviews). The company has

attempted to diversify with additional product offerings, if these newer products do not gain traction with customers there could be a negative effect on overall revenue growth.

Potential entry from large Internet companies. The social CRM industry is extremely competitive, with a variety of companies offering customer community solutions and data

analytics. Participants include Amazon, TripAdvisor (NASDAQ: TRIP $69.98, Not Rated), Facebook, Google, Jive, Salesforce.com, among many others. The entry of any of these

larger companies into the ratings and review space for e-commerce could alter the competitive landscape, and with their substantial resources and existing platforms (i.e.,

Google), and could reduce the value of Bazaarvoice’s offerings. We believe that Bazaarvoice’s large network of clients does create a barrier to entry though this scenario remains a risk.

FINANCIALS

Attractive and highly scalable business model. Bazaarvoice generates the vast

majority of its revenues through fixed commitment subscription contracts. Bazaarvoice bills its clients on annual, quarterly or monthly basis though the contract term is typically

one year and the revenue is recognized ratably over the related subscription period. Bazaarvoice delivers its solutions over the cloud that is scalable and flexible enough to

meet specific client requirements. The solutions are sold through its direct sales teams that are mainly based in the US, UK, Australia, France, Germany, and Sweden.

Bazaarvoice’s revenue is driven by the number of products used by its customers and the usage volume of its customers. The average customer spends approximately $150,000

per year with the company. Bazaarvoice’s business model focuses on maximizing the lifetime value of its client relationships. As a result, there is a significant focus on client

retention. The company’s client retention rates have been steadily within a range of approximately 85% to 90% for the past several years (see Figure 3) and adjusting for a change in the way the company accounted for customers in FY2013 that reduced the

amount of customers. But we believe that based on increased corporate focus and additional products, retention rates will show steady improvements going forward. Our

computation of client retention is based on clients lost during each year compared to the total client count at the beginning of that year.


February 11, 2015 9

Figure 3


Bazaarvoice’s revenue growth rate has slowed in recent years, though the actual revenues

continue to grow. We believe that the company is posed to reaccelerate its revenue growth rate and drive improved performance in three ways:

Add brands from existing customers. Bazaarvoice can add brands from

existing customers. The company has customers that are large but only use

Bazaarvoice for a few of their products. Procter & Gamble (NYSE: PG $84.80, Not Rated) is an example, as they started out using Bazaarvoice for

one brand and then grew it to 39 brands. Add products for existing customers. Bazaarvoice can add products at

existing customers. The company has continues to add new product

offerings in order to diversify its revenues and to drive additional revenues. For example, Procter & Gamble originally used just Bazaarvoice’s Ratings &

Review product. Now Procter & Gamble uses all six of Bazaarvoice’s major products.

Add new customers. Bazaarvoice can add new customers by expanding its

distribution, particularly in international market and expanding its distribution among product manufacturers. The company has been focused heavily on

retailer and consumer products companies and we believe that there are major opportunities in manufacturing, financial services and travel segments.

Bazaarvoice generated revenues of $164 million in calendar 2013 and we believe that the company will generate approximately $186 million in calendar 2014 (a growth of 13%

year over year). We are also forecasting calendar 2015 revenues to be approximately $212 million (a year over year growth of approximately 14%) and calendar 2016

revenues of $241 million (a year over year growth of 14%). The company has a very diverse customer base, as we believe that no single customer accounts for greater than 1% of overall revenues in any quarter.

82%

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Retention & Revenues Drive Growth

Retention Rate

Annualized SAASRevenue Per Client


February 11, 2015 10

We believe that gross margins in CY14 will be approximately 64%. We are forecasting

that they show small year over year improvement to 65% and 66% in CY15 and CY16, respectively.

Operating expenses are primarily driven by the company’s sales and marketing efforts,

which have been growing in actual dollars spent but has been declining as a percentage of revenues for the past several years. Sales and marketing expense accounted for 52% of total sales in CY13 and we believe will account for approximately 45%, 39% , and 36% of

sales in calendar 2014, 2015, and 2016, respectively as the company benefits from increased scale in its business. We believe research and development expense will

account for approximately 21% as a percentage of sales in CY14 and will remain decline slightly in CY15 and CY16 as a percentage of sales while growing slightly actual dollars. General and administrative expenses, which we believe will account for 17% of overall

sales in 2014, should grow slightly in in actual dollars and while declining slightly as a percentage of sales.

We believe that as Bazaarvoice continues to execute on its revenue growth and cost

controls there will be leverage in business model is its ability to become adjusted EBITDA positive grow and free cash flow. In calendar 2013 Bazaarvoice generated an adjusted EBITDA loss of $24 million on revenues of $164 million. In calendar 2014, we are

estimating that the company posts an adjusted EBITDA loss of $17 million on revenues of $186 million. For calendar 2015 we are estimating that Bazaarvoice post an adjusted

EBITDA loss of $3 million on revenues of $212 million. Importantly, for calendar 2016 we are estimating an adjusted EBITDA gain of $19 million on revenues of $241 million, showing the leverage in the model (on an increase of $55 million in revenues from CY14

to CY16 the company can drop $36 million to the adjusted EBITDA line, a 65% Adjusted EBITDA margin on the incremental revenues). We believe that company’s business model

is geared to do significantly better; we are forecasting adjusted EBITDA growth of 32%, 46%, and 41% in 2014, 2015, and 2016, respectively.

VALUATION

Comparable Company analysis

There are no direct publicly traded comparable companies to Bazaarvoice. As a result, we

have taken a cross section of software companies with businesses that are software-as-a-service (SAAS) based and have significant recurring revenues (see Figure 4 below, an

analysis of the companies and the relevant financial metrics). We believe that given Bazaarvoice’s current growth trajectory the most appropriate financial metric to use to

compare the company is enterprise value to sales. The peer group’s CY2016 EV/Sales ratio of 3.0x and estimated average sales growth of 18% compare favorably to

Bazaarvoice which we believe will grow its revenues 20% in CY2016 and yet trades a discount of 27% compared the peer group. We believe that this 27% discount is not warranted and also believe that Bazaarvoice’s new products and other initiatives position

it well to accelerate this top line growth beyond the peer group’s average of 18%. As a result, we believe that Bazaarvoice should trade in line with the peer group’s 3.0x

EV/Sales ratio. Also, we are estimating that Bazaarvoice should turn adjusted EBITDA positive in the second half of calendar 2015 and should be profitable going forward.



Figure 4

Initiating coverage with a BUY rating and a $10.50 price target

We are initiating coverage of Bazaarvoice with a BUY rating based on our belief that the

company is well positioned to benefit from the growth of social commerce and the need for brands and retail websites to provide consumer feedback on their products and services. The company continues to grow its customer base and the average revenue per

customer and we believe is poised to turn adjusted EBITDA positive in the second half of calendar 2015. We believe that the stock currently trades at a discount to its peers based

on an estimated 2016 EV/Sales ratio and this is unwarranted. We are establishing a 12 month price target of $10.50 per share based on our belief that Bazaarvoice shares should in line with the peer group’s 2016 EV/Sales ratio of 3.0x.

National Securities Corporation - Comparable Valuation Analysis, Technology

February 10, 2015

2/10/15 52-wk 52-wk Enterprise

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Cimpress NV CMPR NR $82.81 $84.98 $37.05 $2,975 $1,390 $1,526 $1,657 10% 9% 2.1x 1.9x 1.8x 14.3x 11.8x 10.6x 23.8x 20.0x 17.8x

Constant Contact, Inc. CTCT BUY $41.27 $41.98 $21.08 $1,124 $332 $388 $459 17% 18% 3.4x 2.9x 2.4x 18.5x 15.2x 9.2x 35.8x 31.2x 17.2x

Groupon GRPN NR $7.41 $10.88 $5.18 $4,153 $3,175 $3,619 $4,144 14% 15% 1.3x 1.1x 1.0x 16.2x 12.2x 9.9x 141.8x 45.5x 32.2x

Jive Softw are JIVE NR $6.06 $9.79 $5.06 $346 $178 $206 $238 16% 16% 1.9x 1.7x 1.5x NM NM 37.4x NM NM NM

LivePerson Inc. LPSN NR $10.48 $14.70 $8.84 $486 $209 $266 $303 27% 14% 2.3x 1.8x 1.6x 22.8x 16.8x 14.1x 49.1x 34.2x 27.6x

Marketo Inc. MKTO NR $35.10 $45.00 $22.02 $1,268 $149 $202 $261 36% 29% 8.5x 6.3x 4.9x NM NM NM NM NM NM

Salesforce.com CRM NR $58.87 $67.00 $48.18 $38,010 $5,370 $6,506 $7,891 21% 21% 7.1x 5.8x 4.8x 40.3x 32.2x 25.6x 113.3x 85.0x 63.7x

Ultimate Softw are Group ULTI NR $160.81 $171.96 $109.50 $4,314 $506 $617 $751 22% 22% 8.5x 7.0x 5.7x 35.6x 28.2x 22.0x 79.6x 65.1x 52.3x

AVERAGE $6,584 20% 18% 4.4x 3.6x 3.0x 24.6x 19.4x 18.4x 73.9x 46.8x 35.1x

Bazaarvoice BV BUY $8.22 $8.75 $5.85 $588 $186 $214 $256 15% 20% 3.2x 2.8x 2.3x NM NM 20.2x NM NM 21.4x

Source: Company Reports, S&P Capital IQ, and National Securities Corporation Estimates

P/ERev Growth Y/Y EV/Sales EV/EBITDA



National Securities Corporation

BazaarVoice ACTUAL FY2014 ACTUAL FY2015 ESTIMATE FY2016 ESTIMATE FY2017 ESTIMATE FY2018 ESTIMATE Calendar Calendar Calendar Calendar

BV --- FYE 4/31 FY Q1 Q2 Q3 Q4 FY Q1A Q2A Q3A Q4E FY Q1E Q2E Q3E Q4E FY Q1E Q2E Q3E Q4E FY Q1E Q2E Q3E Q4E FY Year Year Year Year

2013 07/31/13 10/31/13 01/31/14 4/31/2014 2014 07/31/14 10/31/14 01/31/15 4/31/2015 2015 07/31/15 10/31/15 01/31/16 4/31/2016 2016 07/31/16 10/31/16 01/31/17 4/31/2017 2017 07/31/17 10/31/17 01/31/18 4/31/2018 2018 2013A 2014E 2015E 2016E

SaaS Revenues $144 39 40 41 42 $161 44 45 47 46 $183 49 51 56 58 $214 60 62 64 70 $255 62 65 67 69 $263 $157 $178 $202 $243

Net Media Revenues $3 1 1 3 1 $7 2 2 2 2 $8 3 3 3 3 $12 3 3 4 4 $14 4 4 5 5 $18 $7 $7 $11 $13

Revenue $147 $40 $41 $44 $43 $168 $46 $47 $49 $49 $191 $52 $54 $59 $61 $226 $63 $65 $68 $74 $269 $66 $69 $72 $74 $281 $164 $186 $214 $256

Cost of Revenues 47 $12 $13 $14 $15 53 $16 $17 $18 $17 69 $18 $19 $20 $21 78 $21 $22 $23 $25 91 $22 $23 $24 $25 96 51 66 75 87

Gross Profit $99 $28 $29 $30 $29 $115 $30 $30 $32 $31 122 $34 $35 $39 $40 $147 $41 $43 $45 $49 $178 $44 $46 $48 $49 $185 $113 $120 $139 $169

S&M 73 21 21 21 24 86 21 19 20 20 80 20 21 21 22 83 22 22 22 22 88 24 24 24 24 96 85 84 82 88

R&D 32 9 10 9 10 38 10 9 10 10 39 10 10 10 10 40 11 11 11 11 42 12 12 12 12 48 36 38 40 42

G&A 31 9 4 8 7 26 8 8 8 9 33 9 9 9 9 34 8 8 9 10 35 10 10 10 10 40 30 31 34 34

Acquisition Related and other 10 8 8 0 0 16 0 2 3 24 3 - -

Amort of acquired intangible assets 1 0 0 0 0 1 0 0 1 1 1 - -

Total Expenses 147 46 43 38 41 168 39 39 38 39 156 39 39 40 40 157 41 41 42 43 165 46 46 46 46 184 175 157 156 163

Acquisition Related and other 10 8 4 0 0 12 0 2 - - 3 - - - - - - - - - - - - - - - 19 3 - -

Stock Based Comp 13 4 3 3 3 14 3 3 3 3 12 3 3 3 3 12 5 5 6 6 22 6 6 6 6 24 15 12 12 19

Depreciation & Amort. 3 1 1 1 1 4 1 2 1 1 5 1 1 1 1 4 1 1 1 1 4 1 1 1 1 4 4 5 4 4

EBITDA (Adjusted) ($22) ($5) ($5) ($4) ($8) ($22) ($5) ($2) ($2) ($4) ($14) ($1) $0 $3 $4 $6 $7 $8 $10 $13 $39 $5 $7 $9 $10 $29 ($24) ($17) ($1) $29

Other Income, net (1) 0 0 0 0 1 (0) (1) 0 0 (0) 0 0 0 0 2 1 1 1 1 2 1 1 1 1 2 (0) (0) 2 2

Pretax ($23) ($5) ($5) ($4) ($7) ($22) ($6) ($2) ($2) ($4) ($14) ($0) $1 $3 $4 $8 $7 $9 $11 $14 $41 $5 $7 $9 $10 $31 ($24) ($17) $0 $31

Tax Exp. (1) (0) 0 2 0 3 0 0 - - 0 - - - - - - - - - - 0 0 0 1 2 3 1 - -

Non-cash portion of tax expense - - - - - - - - - -

One time Items (2) (3) - (1) (6) - - - (5) (1) - -

Non-GAAP Net income ($21) ($5) ($6) ($6) ($8) ($24) ($6) ($3) ($2) ($4) ($14) ($0) $1 $3 $4 $8 $7 $9 $11 $14 $41 $5 $7 $9 $10 $30 ($27) ($18) $0 $31

Non-GAAP EPS ($US) ($0.65) ($0.06) ($0.18) ($0.19) ($0.24) ($0.67) ($0.07) ($0.03) ($0.03) ($0.05) ($0.18) ($0.00) $0.01 $0.04 $0.05 $0.10 $0.09 $0.11 $0.13 $0.17 $0.50 $0.06 $0.08 $0.10 $0.12 $0.36 ($0.76) ($0.37) $0.00 $0.38

Shares Outstanding 38.7 78.0 31.1 31.3 32.0 43.1 77.8 78.3 78.8 79.3 78.5 79.5 79.8 80.0 80.3 79.9 80.5 80.8 81.0 81.3 80.9 81.5 81.8 82.0 82.3 81.9 43 67 80 81

Margin Analysis

Non-GAAP Gross Margin 67.7% 69.9% 69.6% 68.4% 66.3% 68.5% 64.4% 63.2% 64.0% 64.0% 63.9% 65.2% 65.4% 65.4% 65.4% 65.4% 66.0% 66.0% 66.0% 66.0% 66.0% 66.0% 66.0% 66.0% 66.0% 66.0% 69.1% 64.4% 65.0% 65.9%

S&M 49.8% 52.1% 50.6% 47.6% 55.4% 51.4% 45.6% 40.0% 40.6% 42.1% 42.0% 38.5% 38.0% 35.6% 35.5% 36.8% 16.8% 16.2% 15.4% 14.3% 15.6% 18.2% 17.4% 16.7% 16.2% 17.1% 51.6% 45.1% 38.4% 34.2%

R&D 21.9% 22.1% 23.8% 20.7% 22.8% 22.4% 21.2% 19.7% 19.3% 21.4% 20.4% 19.2% 18.5% 16.9% 16.5% 17.7% 35.2% 33.8% 32.4% 29.9% 32.7% 36.4% 34.8% 33.3% 32.4% 34.2% 22.2% 20.7% 18.9% 16.2%

G&A 21.1% 21.2% 8.8% 17.6% 15.1% 15.7% 17.2% 17.1% 17.0% 17.5% 17.2% 16.3% 15.7% 14.4% 14.0% 15.1% 12.8% 12.3% 13.2% 13.6% 13.0% 15.2% 14.5% 13.9% 13.5% 14.2% 18.0% 16.6% 15.9% 13.1%

Operating Margin -14.9% -13.2% -13.3% -8.8% -17.5% -13.2% -11.4% -3.8% -4.8% -8.8% -7.1% -1.1% 0.6% 5.2% 5.9% 2.8% 10.8% 12.9% 15.3% 17.7% 14.3% 6.9% 9.5% 11.8% 13.3% 10.5% -14.4% -9.1% -0.7% 11.4%

Pretax Margin -15.4% -13.2% -13.0% -8.5% -16.8% -12.8% -12.5% -5.0% -4.1% -8.2% -7.4% -0.4% 1.3% 5.9% 6.6% 3.5% 11.6% 13.7% 16.0% 18.4% 15.1% 7.7% 10.2% 12.5% 14.0% 11.2% -14.6% -9.4% 0.0% 12.1%

Tax Rate 5.1% 7.4% -4.7% -62.9% -5.8% -12.0% -0.2% -10.8% 0.0% 0.0% -1.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.0% 5.0% 5.0% 5.0% 5.0% -11.6% -4.0% 0.0% 0.0%

Net Margin -14.6% -12.2% -13.6% -13.8% -17.8% -14.4% -12.5% -5.6% -4.1% -8.2% -7.5% -0.4% 1.3% 5.9% 6.6% 3.5% 11.6% 13.7% 16.0% 18.4% 15.1% 7.3% 9.7% 11.9% 13.3% 10.6% -16.2% -9.7% 0.0% 12.1%

Percent Change (Y/Y)

Total Sales 42.9% 19.2% 17.1% 12.0% 10.7% 14.5% 14.1% 15.0% 13.1% 12.6% 13.7% 13.0% 14.1% 19.7% 24.7% 18.0% 20.2% 20.4% 15.3% 21.5% 19.3% 5.6% 6.2% 5.9% 0.7% 4.5% 13.2% 15.0% 19.9%

S&M 55.5% 52.7% 21.4% 3.3% 8.1% 18.3% 0.0% -9.1% -3.7% -14.6% -7.1% -4.7% 8.3% 5.0% 5.4% 3.3% 10.0% 7.3% 4.8% 2.3% 6.0% 9.1% 9.1% 9.1% 9.1% 9.1% -1.0% -2.3% 6.8%

R&D 72.1% 24.6% 30.6% 2.4% 13.1% 16.8% 9.0% -5.0% 5.1% 5.8% 3.6% 2.8% 7.5% 5.3% -3.8% 2.7% 5.0% 5.0% 5.0% 5.0% 5.0% 14.3% 14.3% 14.3% 14.3% 14.3% 5.3% 5.3% 2.7%

G&A 63.1% 28.2% -44.3% -5.6% -32.6% -14.9% -7.5% 122.6% 9.5% 30.3% 24.7% 7.7% 4.9% 1.2% 0.0% 3.4% -5.9% -5.9% 5.9% 17.6% 2.9% 25.0% 25.0% 11.1% 0.0% 14.3% 4.7% 10.0% -1.5%

EBITDA (Adjusted) 181.7% 147.7% 37.9% -42.9% -16.6% 1.3% -0.9% -67.2% -38.6% -43.6% -38.3% -88.7% -117.6% -231.4% -183.7% -146.7% NM NM 236.4% 264.7% 504.7% -32.4% -22.1% -17.9% -24.4% -23.6% NM NM NM

Pretax Income 239.1% 108.0% 36.7% -44.3% -24.1% -4.6% 8.5% -55.4% -45.6% -45.3% -34.6% -96.6% -130.0% -273.5% -200.2% -156.5% NM NM 212.1% 240.6% 408.5% -30.2% -20.9% -17.1% -23.5% -22.4% NM NM NM

Net Income 193.0% 73.1% 33.8% 38.8% -24.3% 12.6% 17.4% -52.8% -66.6% -48.3% -40.5% -96.6% -127.1% -273.5% -200.2% -155.5% NM NM 212.1% 240.6% 408.5% -33.7% -24.9% -21.2% -27.3% -26.3% NM NM NM

Share Count -23.6% 24.9% 2.3% 1.2% 3.6% 11.4% -0.3% 151.9% 151.5% 147.8% 82.2% 2.3% 1.9% 1.6% 1.3% 1.8% 1.3% 1.3% 1.2% 1.2% 1.3% 1.2% 1.2% 1.2% 1.2% 1.2% 55.8% 19.4% 1.3%

EPS 349.1% 38.7% 30.8% 37.1% -27.0% 3.6% 17.7% -81.3% -86.7% -79.1% -72.8% -96.7% -126.6% -270.8% -198.9% -154.3% NM NM 208.3% 236.4% 403.3% -34.5% -25.8% -22.2% -28.2% -27.2% -51.1% -100.0% ########


Quarterly Income Statement & Forecast

(US $ millions)




Bazaarvoice 2013 ACTUAL 2014 ACTUAL

BV- FYE 4.31 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1A Q2A

07/31/12 10/31/12 01/31/13 4/31/2013 2013 07/31/13 10/31/13 01/31/14 4/31/2014 2014 07/31/14 10/31/14

Assets

Cash & Equivalents 69 46 24 26 27 28 29 33 25 34

Short Marketable Securities 75 96 82 70 58 47 28 41 68 49

Accounts Receivable 18 22 30 29 26 30 44 39 38 40

Prepaid Expenses and other current assets 4 4 5 7 7 7 7 8 13 13

Assets held for sale 34

Total Current 165 169 141 132 119 112 108 154 144 136

PP&E 11 13 13 15 17 17 17 17 18 18

Restricted Deposits - - - - - - - - -

Goodwill 113 113 142 142 142 142 142 139 139 139

Intangible Assets, net 40 39 53 52 50 48 47 13 13 12

Deferred income taxes, noncurrent - - - - - - - - -

Other assets, net 0 0 0 2 2 3 3 3 4 4

Total assets 330 334 350 342 330 322 317 327 318 309

Liabilities

Accounts Payable 5 6 6 7 6 7 7 3 4 4

Accrued expenses 13 17 23 32 35 34 27 27 26 27

Revolving Line of Credit - 27 27 27

Deferred Rev 46 47 51 55 53 51 54 55 57 52

Liabilities held for sale 4

Total Current Liabilities 64 70 80 94 94 92 88 116 114 110

Other Long Term 7 6 10 7 6 6 6 5 5 5

Total Liabilities 71 76 91 101 100 98 94 121 119 115

S.E. 260 258 259 241 230 225 223 206 199 194

Total L & S.E. 330 334 350 342 330 322 317 327 318 309


Balance Sheet($ in millions, except per share data)



IMPORTANT DISCLOSURES:


410 Park Avenue, 14th Floor, New York, NY 10022

REG AC ANALYST CERTIFICATION

The research analyst named on this report, Ilya Grozovsky, certifies the following: (1) that all of the views expressed in this research report accurately reflect his personal views about any and all of the subject securities or issuers; and (2) that no part of his

compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by him in this research report.

IMPORTANT DISCLOSURES

This publication does not constitute and should not be construed as an offer or the

solicitation of any transaction to buy or sell any securities or any instruments or any derivatives of the securities mentioned herein, or to participate in any particular trading strategies. Although the information contained herein has been obtained from recognized

services, and sources believed to be reliable, its accuracy or completeness cannot be guaranteed. Opinions, estimates or projections expressed in this report may make

assumptions regarding economic, industry, company and political considerations, and constitute current opinions, at the time of issuance, which are subject to change without notice.

This report is being furnished for informational purposes only, and on the condition that it will not form a primary basis for any investment decision. Any recommendation(s)

contained in this report is/are not intended to be, nor should it / they construed or inferred to be, investment advice, as such investments may not be suitable for all

investors. When preparing this report, no consideration to one’s investment objectives, risk tolerance and other individual factors was given; as such, as with all investments, purchase or sale of any securities mentioned herein may not be suitable for all investors.

By virtue of this publication, neither the Firm nor any of its employees shall be responsible for any investment decisions. Before committing funds to ANY investment, an investor

should seek professional advice. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice, or to be used by anyone to provide tax advice. Investors are urged to consult an independent tax

professional for advice concerning their particular circumstances. Past performance should not be taken as an indication or guarantee of future performance, and no representation

or warranty, either expressed or implied, is made regarding future performance.

National Securities Corporation (NSC) and its affiliated companies, shareholders, officers,

directors and / or employees (including persons involved with the preparation or issuance of this report) may, from time to time, have long or short positions in, and buy or sell the securities or derivatives (including options) thereof, of the companies mentioned herein.

One or more directors, officers, and / or employees of NSC and its affiliated companies, or independent contractors affiliated with NSC may be a director of the issuer of the

securities mentioned herein. NSC and / or its affiliated companies may have managed or



co-managed a public offering of, or acted as initial purchaser or placement agent for a private placement of any of the securities of any issuer mentioned in this report within the last three (3) years, or may, from time to time, perform investment banking or other

services for, or solicit investment banking business from any company mentioned in this report.

This research may be distributed by affiliated entities of National Securities Corporation (NSC). Affiliated entities of NSC may include, but are not limited to, vFinance Investments, Inc., Equity Station, National Asset Management and other subsidiaries of

our parent company, National Holdings Corporation.

The securities mentioned in this document may not be eligible for sale in some states or

countries, nor be suitable for all types of investors; their value and the income they produce if any, may fluctuate and/or be adversely affected by exchange rates, interest

rates or other factors. Furthermore, NSC may follow emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. This report does not take into account the particular

investment objectives, financial situation or needs of individual investors. Before acting on any advice or recommendation in this material, the investor should exercise independent

judgment as to whether it is suitable in light of his/her particular circumstances and, if necessary, seek professional advice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express

or implied, is made regarding future performance.

Additional information relative to securities, other financial products, or issuers discussed

in this report is available upon request. Neither this entire report, nor any part thereof, may be reproduced, copied or duplicated in any form or by any means without the prior written consent of National Securities Corporation. All rights reserved. NSC is a member of

both the Financial Industry Regulatory Authority (FINRA) and the Securities Investors Protection Corporation (SIPC).

For disclosures inquiries, please call us at 1-800-417-8000 and ask for your NSC representative, or write us at National Securities Corporation, Attn. Al Scerbo -

Supervision Department, 410 Park Avenue, 14th Floor, New York, NY 10022, or visit our website at www.nationalsecurities.com

Research Disclosures Legend

Relevant Disclosures: 1 National Securities (NSC) is a market-maker in the securities of the subject

company 2 In the past twelve (12) month period, NSC and / or its affiliates have received

compensation for investment banking for services from the subject company

3 In the past twelve (12) month period, NSC and / or its affiliates have received compensation from the subject company for services other than those related to

investment banking 4 In the past twelve (12) month period, NSC was a manager or a co-manager of a

public offering of one or more of the securities of the issuer

5 In the past twelve (12) month period, NSC was a member of the selling group of a public offering of the security (ies) of the issuer



6 One or more directors, officers, and / or employees of NSC and / or its affiliated companies is / are a director (s) of the issuer of the security which is the subject of this report

7 NSC and / or its affiliates expects to receive or intends to seek compensation for investment banking services from the subject company at some point during the

next three (3) months 8 A research analyst or a member of his / her household has a financial interest in

the securities of the subject company as follows: a) long common stock; b) short

common stock; c) long calls; d) short calls; e) long puts; f) short puts; g) long rights; h) short rights; i) long warrants; j) short warrants; k) long futures; l)

short futures; m) long preferred stock; n) short preferred stock 9 As of the end of the month immediately preceding the date of publication of this

report or the end of the prior month if the publication is within ten (10) days

following the end of the month, NSC and / or its affiliates beneficially owned one percent (1%) or more of any class of common equity securities of the subject

company. 10 Please see below for other relevant disclosures

Shares of this security may be sold to residents of all 50 states, Puerto Rico, Guam, the US Virgin Islands and the District of Columbia.

*Investment banking services provided in the previous 12 months

MEANING OF RATINGS:

BUY: the stock is likely to generate a total return of at least 10% over the next 12 months and should outperform relative to the industry.

NEUTRAL: the stock is likely to perform in-line with the industry over the next 12 months.

SELL: the stock is likely to underperform (from a total return perspective) relative to the industry over the next 12 months.

NR: Not Rated

SP: Suspended

Investment Banking*

Rating # % # %

BUY 11 64.7% 5 29.4%

NEUTRAL 6 35.3% 2 11.8%

SELL 0 0.0% 0 0.0%

Distribution of Ratings



Charts - BV

Source: Capital IQ.

BV Date Rating Price Target

Initiation 2/11/15 BUY $10.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

$8.00

$8.50

$9.002

/10

/20

14

3/2

/20

14

3/2

2/2

01

4

4/1

1/2

01

4

5/1

/20

14

5/2

1/2

01

4

6/1

0/2

01

4

6/3

0/2

01

4

7/2

0/2

01

4

8/9

/20

14

8/2

9/2

01

4

9/1

8/2

01

4

10

/8/2

01

4

10

/28

/20

14

11

/17

/20

14

12

/7/2

01

4

12

/27

/20

14

1/1

6/2

01

5

2/5

/20

15

$9.00 february 11, 2015 buy ( ilya grozovsky $8 · 2017-12-21 · social commerce keeps growing....

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