This Is The 'Glue' Holding App Developers Together: Here's How To Invest

In a report issued Thursday, analysts at Pacific Crest including Rob Owens, Brendan Barnicle, Brent Bracelin and their respective teams looked into the software industry and trends among developers.

According to the note, “the days of broad, monolithic applications are numbered.” The velocity of software development is generating a shift to micro-apps and platforms. Thanks to APIs, lego programming and data gravity, developers and pseudo-developers (including business-owners and citizens) are now able to address narrow, specific market verticals. Moreover, applications have mutated from being a system of record to working as “a means of engagement and monetization.”

The experts see two areas of value creation deriving from this trend, which they conceive as favorable for Apigee Corp (NASDAQ: APIC), Box Inc (NYSE: BOX), salesforce.com, inc. (NYSE: CRM), ServiceNow Inc (NYSE: NOW) and Splunk Inc (NASDAQ: SPLK):

1) Platforms provide the foundation (building blocks) for specialized software and micro-apps. Spending on platforms continues to grow while “the stickiness of the solutions makes it a profitable end market."

“Many companies are building toward future franchise platform opportunities,” the analysts note. However, they consider Salesforce to be the best app platform, and believe Atlassian, ServiceNow and Splunk are leading this trend.

2) The increasing fragmentation requires some kind of “glue” that connects micro-apps. The analysts see a rising amount of spending going towards this connection layer.

“API management and application performance management tools, and their attached analytic features, allow enterprises the material necessary to effectively stand up applications regardless of method of deployment.”

Within this “glue” layer, they see Apigee, AppDynamics and New Relic as early leaders.

Pacific Crest gives the stocks the following ratings and price targets:

• Apigee – Overweight rating, $21 price target
• Box – Sector Weight rating, no price target
• Salesforce - Overweight rating, $80 price target
• Servicenow - Overweight rating, $82 price target
• Splunk - Overweight rating, $82 price target