Morgan Stanley looks ahead to the fourth quarter SaaS industry and bluntly states "cautious overall", still maintaining a "hold and wait" stance.

Recently, Morgan Stanley released a research report stating that the valuation of non-financial quarter software as a service (SaaS) companies reflects high growth expectations. At the same time, due to the need to consider various macro risks, the risk will outweigh the return before obtaining the 2026 fiscal year performance guidance. If the stock price falls back, or if the company's fundamentals improve, making the 2026 fiscal year performance guidance seem conservative, the firm will take a more positive stance on these SaaS companies rated as "hold" (EqualWeight). In the report, Morgan Stanley wrote that it sees a premium multiple for software asset growth, but due to the risks associated with the 2026 fiscal year performance guidance and the sector's performance being up more than 19% since the beginning of the year compared to the software sector, it still maintains a "hold" rating. The firm stated that the SaaS industry has undergone a revaluation and now needs fundamental support. As SaaS companies release their financial reports during the non-financial quarter, caution is needed. The revaluation of this sector now requires fundamental improvements to support it to meet investors' higher expectations. This is not only influenced by macro uncertainties, but also by the slow monetization process of artificial intelligence (AI), the risks of 2026 fiscal year performance guidance not aligning with market consensus expectations, which must consider factors such as exchange rate headwinds, federal spending-related risks, and large transaction risks caused by macro uncertainties. For companies that had strong performance in the fourth quarter of 2024, improved fundamentals, and initial 2026 fiscal year performance guidance lower than market consensus expectations, Morgan Stanley believes there is an opportunity to accumulate more stocks when the stock price may fall due to guidance release. Key Company Analysis DocuSign (DOCU.US): Maintains an "Equal-Weight" rating with a target price of $97. DocuSign (e-signature company) has become a leader in the e-signature field, accelerating business transactions through a secure cloud platform, with over 1.5 million customers and over 1 billion users globally. Despite the normalization of demand post-pandemic, the company still faces issues such as sales team productivity, leadership changes, unstable macroeconomic environment, intensified competition, e-signature commoditization, and pricing pressure, making its future uncertain and transformation challenging. However, the firm sees potential for the company in profit margin expansion, as well as stable free cash flow, which helps support its valuation, balancing risks and returns at the current level. Samsara (IOT.US): Maintains an "Equal-Weight" rating with a target price of $56. The investment logic for Samsara mainly revolves around its expansion in core interconnected operational business and its ability to break through the basic fleet management product category. Driven by the growing demand for its telematics business, the company is expected to maintain strong growth while further expanding its customer base. Although the firm believes there is ample room for growth in the Internet of Things interconnected operational cloud services to support the company's continued growth and enhanced operational efficiency, Samsara's current stock price has a significant premium compared to peers, resulting in a balanced state between risk and return. Box (BOX.US): Maintains an "Equal-Weight" rating with a target price of $36. The firm is optimistic about Box's ability to address a range of new application scenarios and expand into adjacent markets, thus increasing the company's total addressable market (TAM). Its suite upgrades and extensions (such as higher-priced suites, artificial intelligence applications, and broader enterprise content management application scenarios) are expected to bring many benefits, but the next wave of impact is not expected until the 2026 fiscal year. Morgan Stanley acknowledges the quality and value of Box's products and believes its free cash flow can maintain stable double-digit growth. Considering capital returns, its free cash flow per share growth rate will be slightly higher. However, due to the lack of driving factors and relatively reasonable valuation compared to the closest peer companies, there will not be significant revaluation, and the firm currently sees limited upside potential. Asana (ASAN.US): Maintains a cautious stance and an "Equal-Weight" rating with a target price of $18. Asana is a work management platform that helps users coordinate various tasks, covering everything from daily tasks to cross-functional strategic plans. The platform is easy to operate, has an intuitive user interface, and has highly attractive application scenarios across the entire enterprise, allowing it to rapidly develop in a fiercely competitive market environment. However, competition is intensifying, product differentiation is becoming increasingly blurred, and operational profit margins are not as satisfactory. Given that Asana's revenue growth has significantly slowed down and it is operating at a substantial loss, the firm is currently adopting a wait-and-see approach, hoping to have more confidence in its revenue sustainability and operational efficiency before assessing whether the current level is reasonable. Sprinklr (CXM.US): Maintains an "Equal-Weight" rating with a target price of $10. The unified customer experience management platform holds a leading position in the enterprise sector, with a potential market size of up to $51 billion, and the current penetration of this market is low. However, in a competitive market environment for point solution solutions and amid an unstable macroeconomic situation, the current valuation of Sprinklr is considered reasonable. Given the adjustment of the sales team structure, concrete evidence is still needed to prove that productivity improvements can support sustained revenue growth while enhancing profitability. These factors are reflected in the company's plan to achieve the "40 rule" by 2027, which means 40% of the target. E2open Parent Holdings (ETWO.US): Maintains an "Equal-Weight" rating with a target price of $3. Over the past seven years, E2open has made 12 acquisitions, building an end-to-end supply chain platform and expanding its share in the approximately $27 billion supply chain market. Although the unified customer experience management platform has a significant opportunity for further development, the current company valuation is considered appropriate given the competitive market environment for point solution solutions and unstable macroeconomic conditions.Moreover, recently these acquisitions have caused sales disruptions, leading to worsening customer churn and a sharp slowdown in growth.Currently, the enterprise value is approximately 3 times the 2026 annual sales and 15 times the 2026 annual free cash flow. This valuation is comparable to low-growth Software as a Service (SaaS) peers. The bank believes that this valuation already reflects the slowing growth and sales disruption, but due to its stable core enterprise customer base and high total retention rate, there is additional strategic value.