The cloud software business is like a “knife fight in the mud,” as one famous TV personality put it, with vendors scrambling for crumbs of declining business spending and hoping Expect more to fall to the floor.
“It’s only going to get bloodier and muddier over the next nine months,” Lopez Research analyst Maribel Lopez told MarketWatch in an interview following the lines of “Succession” media mogul Logan Roy’s lines. HBO appeared.
A parade in earnings from the big cloud software names this week has indeed sent their stocks a slight recovery overall, following major declines in recent months. Those reports, however, haven’t changed the overall results for cloud software providers so far this year: Chief information officers, the executives in charge of digital infrastructure, are short of cash and delay contracts because of macroeconomic uncertainties.
“After an epic run, cloud software is going through a rough patch as companies reassess what really adds value,” Lopez told MarketWatch. “Actually, it’s like while companies wait and see the impact of an impending recession.”
In a Zscaler note on Friday, MoffettNathanson analyst Sterling Auty said that makes CIOs much more cautious in their vetting process before they commit to large multi-year contracts.
“This is a double-edged sword, as the increased deal size is coming at a time when, due to the macro, customers and prospects have a magnifying glass over new IT purchases,” says Auty. this is lengthening the sales cycle,” says Auty.
A big concern for cloud software vendors is securing a share of the SME market, as many see Microsoft Corp.
capture more market share from smaller players. On the flip side, younger companies are also trying to compete with Microsoft for bigger companies, and suppliers find those deals take longer to complete and affect growth. subscriber chief.
According to some post-earnings calls, it’s hard for cloud software providers to get deals in a cost-conscious environment. Over the past few years, native cloud companies — and legacy companies that have moved to the cloud — have introduced their version of the “platform,” or essentially an ecosystem. By adding new services or modules to the platform, companies incentivize customers to add more modules or functions to their custom platform.
Security was an exception, but now it faces the same problems
Businesses are becoming more cautious in their spending, and among cloud services, the CIO rates cybersecurity as a top priority, which is reflected in the stock’s performance. Year-to-date, ETFMG Prime Cyber Security ETF
fell 23.7% and the First Trust Nasdaq Cybersecurity ETF
fell 31.6% on the year, while the Global X Cloud Computing ETF
fell 35.9%, the first cloud ETF
fell 39.3% and WisdomTree Cloud Fund
fell 49.6%. Meanwhile, the S&P 500
down 14.6% and the Nasdaq Composite Index
However, Thursday’s results show how that sector may face more problems than expected. Guggenheim analyst John DiFucci summed up this week in a Zscaler note titled: “Nobody Beats the Macro”.
DiFucci thought Zscaler was best positioned this week in the cloud software space but admitted in the note, “We were wrong.”
“There is certainly a macro issue that has affected the Software the most, and while the Security businesses may have seemed a bit isolated at first, they no longer do,” he wrote. “The question is, how long will this weak macro backdrop last?”
The problem comes up most often in invoices – a more comprehensive sales metric widely used by software companies that combines revenue with deferred revenue for unprovided contract services .
For instance, Zscaler guided bills from $1.93 billion to $1.94 billion for the year, while analysts had forecast $1.93 billion, a sore spot for companies. Investors. On a year-to-date basis, Zscaler bills have consistently exceeded Wall Street consensus since 2018, with as low as 2.6% in 2019 and 3.7% last year, according to data compiled by Bloomberg. Factset. Over the past week, shares of Zscaler are down 7% and down 59.9% for the year.
Zscaler’s earnings report is similar to that of CrowdStrike Holdings Inc.
on Tuesday, when the cybersecurity company said Subscriber growth is slowing down due to longer buying cycles from customers. CrowdStrike shares fell 15% the next day, their second worst day. Last week, they were down 11.5% and down 39.4% on the year.
Shares took a hit after the customer relationship management software giant issued a rare forecast that fell short of expectations on Wednesday and revealed that co-CEO Bret Taylor would be leaving the company. In the last week, Salesforce’s stock has fallen 4.7% and is down 43.1% for the year.
The results were greeted with mixed reviews on Wall Street. Last week, the share price was up 3.5%, while down 55.8% for the year.
Even Palo Alto Inc. Network.
successfully kicked off the cybersecurity earnings season, said it needs to be more active with customers to close deals sooner. Last week, stocks ended flat and they are down just 7% for the year.
Cloud software exceptions knocked it out of the park in the past week
rose 17% on Wednesday after the human-resources cloud software company raised its outlook and launched a share buyback program. In the last week, the stock is up 14.8% and down 37.4% for the year.
surprise investors Profit forecast for the fourth quarter and sustaining profit over the next year, and the stock spiked 25% the next day. Okta stock is up 29.9% for the week but down 71% for the year.
The stock edged up a bit from its steep year-to-date decline – now down 66.3% – after the “software robotics” supplier’s quarterly results and outlook beat Street estimates. Wall. Last week, shares of UiPath rose 17%.
For the week, HACK is up 1.8%, CIBR is up 0.7%, IGV is up 2%, CLOU is up 4.7%, SKYY is up 2.7% and WCLD is up 4.1%, while the S&P 500 is up 1. .1% and Nasdaq rose 2.1%.