Demandware - Strong Candidate for a Short-sell

Demandware Inc. (NYSE: DWRE)
Technology; Application Software 30%-40% Downside

Demandware, a provider of e-commerce cloud based solutions, is exposed to the growth of e-commerce retailing. However, we believe that investors are overly optimistic about the prospects of the company. We were unable to justify Demandware's lofty valuation from a fundamental perspective. Our opinion is based on the following argument:

1. Digital commerce is booming but the space is clogged up with numerous blue chip  players.
2. Demandware is not a clear leader in e-commerce software space.
3. Customer acquisition growth of the company is slowing down.
4. Demandware is retail-centric. But, we don't see hyper scale retailers using their services.
5. Demandware is not a favorable acquisition target due to its disproportionate valuation.

We believe that Demandware will retract to a reasonable valuation once the competition intensifies and the company witnesses margin pressure. Detailed research piece with valuations will follow later.