STOCKREPORTS

Mercury Interactive Corporation

Nasdaq Symbol MERQ

Recent Price 15.63 52 Wk Range 17.50 - 10.00

Yield Nil 12-Mo. P/E 36.3

Quantitative Evaluation: Outlook (1 Lowest - 5 Highest) NA Fair Value NA Risk HIGH Earn/Div Rank NR
Technical Evaluation: BULLISH since 05/97 Rel. Strength Rank (1 Lowest - 99 Highest) 60 Insider Activity Neutral

Overview 19-MAY-97

Revenues should grow by about 40% in 1997, as the Automated Software Quality (ASQ) market continues to expand and Mercury Interactive, the industry leader, continues to introduce new products. Growth will be led in the beginning of the year by the continued roll-out of Astra, a comprehensive internet software testing tool which supports any web browser or server. The industry's transition from a UNIX to a Windows NT platform will drive growth in MERQ's client/server testing tools, while testing of packaged applications software will also contribute to growth. European operations, hampered in 1996 by management turmoil, should settle down and contribute to growth. R&D expenditures will be sharply higher, but should grow more slowly than revenues. The company is also expanding its sales staff. Earnings should increase to $0.75 in 1997, from 1996's earnings of $0.28.

Valuation 19-MAY-97

We are lowering our opinion to "hold" after the share price, which had been depressed along with smallcap stocks in general, sharply rallied off its 1997 low in April and early May. While the long term outlook for ASQ market growth remains bright, the failure of smallcap technology stocks to fully participate in the market's recent move to new highs is disturbing in the short term. Furthermore, technology stocks often undergo a summer swoon as heavy vacation schedules postpone sales. We believe at this time that the shares will likely track the market until second quarter earnings are released toward the end of July.

Key Stock Statistics

Fiscal Year Ending Dec. 31

Dividend Data: No cash dividends have been paid. The company intends to retain earnings for use in its business and does not expect to pay cash dividends in the foreseeable future. A stockholder rights plan was adopted in July 1996.

Business Summary 19-MAY-97

Mercury Interactive Corp. develops, markets and supports a family of automated client/server and Web-based (Internet and intranets) tools for testing business-critical applications. MERQ's products allow corporate development organizations, system integrators and independent software developers to identify client/server system problems with greater accuracy, speed and efficiency than traditional methods allow.

Mercury's automated software quality products allow developers of client/server software to compress software development cycles, reduce costs and improve software quality throughout the development, maintenance and porting process by automating the tedious, highly structured and error-prone manual testing process.

The company's XRunner product is an automated GUI regression tool which tests X Window applications running under UNIX. XRunner makes test development easier by incorporating simplified test script management, point-and-click selection and interactive debugging. WinRunner tests client/server GUI applications on Windows 3.1, Windows 95 and Windows NT platforms. LoadRunner is an integrated client/server and Web load testing tool. It provides a scalable load testing solution for managing the risks of client/server systems. The company's TestDirector is a workgroup test management software that directs the quality assurance process for software development. SQLInspector, a tool for viewing application function calls to databases, includes performance data so that developers can analyze their application's database access and better understand how to tune the application. WebTest (released in March 1996) is the first technology designed specifically for testing Web applications. Astra SiteManager (released in October 1996) is a comprehensive visual Web site management tool. Astra SiteTest (released in December 1996) is a stress testing tool for Web-based systems.

The company markets its products primarily through its direct sales and service organization, which focuses on major accounts. Current customers include Chase Manhattan, Lucent Technologies, American Express, AT&T, IBM, KPMG Peat Marwick, Motorola, Bell Canada, and Siemens, among others. International sales represented 37% and 29% of total revenues in 1996 and 1995, respectively.

In addition to its own sales force, MERQ has an indirect sales channel of value added resellers and major system integrators, including Andersen Consulting, EDS and KPMG Peat Marwick. The indirect sales channel accounted for 43% and 23% of total license revenues in 1996 and 1995, respectively. The company believes that the indirect sales channel will account for an increasingly significant portion of total revenue in future periods.

Capitalization

Long Term Debt: None (3/97).

Curr. Ratio	5.2	4.7	4.2	4.8	1.9	NA	NA	NA	NA	NA
% LT Debt of Cap.	Nil	Nil	Nil	1.3	7.7	NA	NA	NA	NA	NA
% Net Inc.of Revs.	8.5	NM	21.5	10.5	NM	NA	NA	NA	NA	NA
% Ret. on Assets	4.0	NM	10.9	2.1	NM	NA	NA	NA	NA	NA
% Ret. on Equity	4.8	NM	13.8	NM	NM	NA	NA	NA	NA	NA

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--470 Potrero Ave., Sunnyvale, CA 94086. Tel--(408) 523-9900. Fax--(408) 523-9911. Website--http://www.merc-int.com Chrmn--A. Finegold. Pres & CEO--A. Landan VP-Fin, CFO & Secy--Sharlene Abrams. Dirs--A. Finegold, I. Kohavi, A. Landan, Y. Shamir, G. Yaron. Transfer Agent & Registrar--ChaseMellon Shareholder Services, San Francisco. Incorporated--in Delaware in 1989. Empl-- 380. S&P Analyst: Mark Basham, Adam Penn

This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 1997