Coupa and Shopify have seen their share prices fall in 2022, while Dropbox has held steadier. Overall, cloud stocks have suffered post-pandemic as the macroeconomic situation remains difficult. However, industry predictions suggest growth for funds such as the Global X Cloud Computing ETF in the longer-term.
- Cloud shares badly hit by rising interest rates in 2022
-Tech cuts not over yet, say top analysts, but growth is on the cards longer term
-The Global X Cloud Computing ETF is down by 35.9% year-to-date, but up 9% in the past month
The Global X Cloud Computing ETF [CLOU], which focuses on cloud computing-based stocks and holds the likes of Coupa Software [COUP], Dropbox [DBX] and Shopify [SHOP], is down 35.9% year-to-date as of 2 December’s market close.
The Coupa Software share price has fallen by 59.1% in 2022 to 2 December, paling in contrast to its highs of more than $360 during February 2021. Meanwhile, Shopify stock has slumped by a colossal 68.7% year-to-date. Dropbox is the best performer out of the three, having only slid 4.9% to 2 December.
While this paints a glum picture for cloud computing stocks, the past few weeks have seen their fortunes shift. In the past month, Coupa’s stock is up 31.15% in the past month, while Shopify has gained 28.5% over the past month, to close at $43.06 on 2 December. Dropbox has risen 12.8% in the past month.
By comparison, the S&P 500 is down by 14.6% year-to-date and up 8.3% in the past month.
What is boosting cloud computing stock?
While the company’s stock has been battered in 2022, business spend management platform Coupa last week experienced a much-need lift following media reports that it was in discussions with private equity firm Vista Equity regarding a takeover. Its share price jumped 34% during trading on 23 November, bringing the company’s market value to approximately $4.7bn. The company is due to report its next earnings after market close on 12 December.
Meanwhile, Dropbox president Timothy H. Young sold off 18,000 shares of the company’s stock in August and September. In early November, Goldman Sachs cut its target on Dropbox stock to $22 from $25 and kept a 'sell' rating. However, the company reported earnings per share that beat analyst expectations at its third quarter results, released in early November.
Despite a year of tightening consumer pocketbooks, shopping platform Shopify saw its stock jump by 13.2% between 28 November and 2 December, after it announced it had beat its 2021 Black Friday record.
Demand for cloud services set to grow
According to analysis by Grand Review Research, released in February 2022, the global cloud computing market is currently worth $483bn. The report also predicted the sector could expand by over 300% by 2030, reaching a value of $1.5trn.
During the pandemic, demand for cloud computing services increased significantly, and cloud services seem likely to remain in demand as workplaces and other institutions continue to rely on them. According to Grand View Research, the cloud market is likely to expand at a compound annual growth rate of 15.7% over the next eight years. Nevertheless, growth stocks – including those in the cloud sector – have not been immune to the pain on markets this year, particularly as they are more sensitive to rising interest rates as they attempt to raise funding.
"This macro slowdown clearly will impact all aspects of tech spending over the next 12 to 18 months," said Wedbush analyst Daniel Ives, speaking to Investor's Business Daily. "Cloud spending is not immune to the dark macro backdrop as seen during earnings season."
Fund in focus: Global X Cloud Computing ETF
The Global X Cloud Computing ETF was established in December 2019, before the pandemic hit, and features companies that offer SaaS as well as platform-as-a-service (PaaS), infrastructure-as-a-service (IaaS) and cloud-related areas such as server storage management.
Coupa is currently the fund's largest holding with a 4.85% share of the fund’s portfolio as of 2 December. Shopify is in number three position, with a weighting of 4.60%, while Dropbox is the ninth-largest holding with a weighting of 4.11%. Other names in the top 10 include Five9 [FIVN] and Workday [WDAY], which are the second and fourth top holdings, respectively.
While the fund has dropped 35.9% year-to-date, over the past month it has been showing signs of recovery, with an uptick of 9%.