By Wallace Witkowski and Jeremy C. Owens
Earnings watch: After a pandemic boom, concerns are mounting about business-software spending ahead of a week of earnings results
The week after Thanksgiving could determine if cloud software is still too fat or if there are some tasty leftovers for Wall Street.
It has been a rough month for cloud-software stocks, which experienced their worst week on record to kick off November and have seen cold rain continue to fall amid a perceived slowdown in business spending after a wave of cloud adoption in the first two years of the pandemic. Early results from Atlassian Inc(TEAM) and Twilio Inc(TWLO) started the downturn, and recent earnings have not revived the sector.
Autodesk Inc. (ADSK)signaled a slowdown in business spending on Tuesday as executives trimmed their billings outlook for the year, leading Mizuho desk analyst Jordan Klein to conclude that the week after Thanksgiving could be the tipping point for software earnings.
"I do not want to be overly dramatic here," Klein wrote in a Wednesday note, "but after a very rough year" -- along with software lagging tech and the S&P 500 -- "the software sector feels poised to potentially roll over hard if a slew of key results next week are disappointing."
The slate of cloud-software companies reporting next week is long, and two of the biggest names in the sector, cloud pioneer Salesforce.com Inc. (CRM) and hot young name Snowflake Inc. (SNOW), both report on Wednesday. They will be preceded by Intuit Inc. (INTU), Workday Inc. (WDAY) and CrowdStrike Holdings Inc. (CRWD) on Tuesday, and will be joined on Wednesday by Okta Inc. (OKTA), Splunk Inc. (SPLK), Nutanix Inc. (NTNX), Box Inc. (BOX) and Yext Inc. (YEXT). Cloud-security name Zscaler Inc. (ZS) rounds out the week on Thursday along with Veeva Systems Inc. (VEEV) and UiPath Inc. (PATH).
Ticker Expected report date FactSet EPS consensus FactSet revenue consensus INTU Nov. 29 $1.19 $2.5 billion WDAY Nov. 29 84 cents $1.59 billion CRWD Nov. 29 32 cents $575.1 million CRM Nov. 30 $1.22 $7.83 billion SPLK Nov. 30 25 cents $847.5 million OKTA Nov. 30 (loss) 24 cents $465.4 million SNOW Nov. 30 5 cents $539.6 million ZS Dec. 1 26 cents $340.7 million
Morgan Stanley analyst Keith Weiss said Salesforce looks best positioned among cloud companies this earnings season, in that execs are under the gun to show better-than-feared demand, margin protection and efforts to de-risk 2023.
"With companies generally playing catch-up in regards to pushing the impacts of deteriorating macro conditions into [second half of 2022] guidance, [calendar year 2023] consensus estimates likely remain too high across many names, particularly given most 2023 guidance is still to come and customers' 2023 IT budgets are biased to be revised lower," Weiss wrote in a note.
However, Cowen analyst Derrick Wood, who has an outperform rating, noted that while his checks indicate demand for Salesforce's core products was "constructive," demand for products from acquisitions like Tableau, Slack and Mulesoft appeared "weaker."
Should next week turn sour, Mizuho's Klein sees Microsoft Corp. (MSFT) and Oracle Corp. (ORCL) as "potential defensives," as he believes more money may migrate from software names into chipmakers' stock, which would be an about-face from his call from five months ago, when he speculated about whether investors were taking money out of chips and putting it into software.
So far, in November, while the S&P 500 has gained 2.4%, and the tech-heavy Nasdaq Composite has ticked 0.6% higher, the iShares Expanded Tech-Software Sector ETF (IGV) has slipped1.9%, the Global X Cloud Computing ETF (CLOU) has declined 3.8%, the First Trust Cloud Computing ETF (SKYY) has fallen 5.6%, and the WisdomTree Cloud Computing Fund (WCLD) has dropped 10.4%.
This week in earnings
Salesforce is the only Dow Jones Industrial Average component set to report this week, but nine S&P 500 companies are on the docket. In addition to Intuit on Tuesday, NetApp Inc. (NTAP) and Hewlett-Packard Enterprise Co. (HPE) are scheduled to report. Synopsys Inc. (SNPS) and Hormel Foods Corp. (HRL) will join Salesforce on Wednesday, and Kroger Co. (KR), Dollar General Corp. (DG) and Ulta Beauty Inc. (ULTA) are scheduled for Thursday.
The numbers and calls to watch
Black Friday wrap-ups: Early reports suggested not much growth from Black Friday sales over a year ago, despite inflation pushing prices higher overall. Some retail companies will get the opportunity to discuss exactly how their early holiday sales went this week, with Ulta, Kroger and Dollar General being joined this week by the likes of Victoria's Secret & Co. (VSCO), Five Below Inc. (FIVE), Big Lots Inc. (BIG) and Petco Health and Wellness Co. (WOOF). In addition, Costco Wholesale Corp. (COST) is expected to provide November sales data on Wednesday, ahead of full quarterly earnings a little more than a week later.
(END) Dow Jones Newswires
November 28, 2022 17:11 ET (22:11 GMT)
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