On the whole, 2020 proved a profitable year for software-as-a-service (SaaS) companies, with the coronavirus pandemic and its associated lockdowns creating a new set of working-from-home practices that drove the need for remote working tools and cloud-based software.
Video conferencing platform Zoom’s [ZM] share price is currently 240.6% higher than 12 months ago, despite having fallen 38.1% from an all-time high of $588.84, reached during intraday trading on 19 October. Zoom’s share price has grown 8.1% in 2021 so far (as of close on 25 February).
Big data analytics platform Splunk’s [SPLK] share price, by contrast, has fallen 6.8% in the year to date, currently trading at $145.08, similar to a year ago, before the March crash pushed Splunk’s share price as low as $93.92. A recovery to an all-time intraday high of $225.89 on 2 September didn’t survive the winter, with Splunk’s share price closing 2020 down at $169.89.
Cloud-based data warehouse manufacturer Snowflake [SNOW] made headlines in September when its IPO became the largest ever for a software company. Snowflake’s share price is currently 2.5% higher than on the date of its IPO (as of 25 February’s close). However, it has fallen dramatically since hitting an all-time high of $429 during trading on 8 December, eventually closing at $390. The latest close of $260.34 on 25 February is 39.3% below this high, and 7.5% down on 2020’s closing price.
All three companies are due to announce earnings on the week commencing 1 March: Zoom will report after markets close on 1 March, Splunk and Snowflake after markets close on 3 March.
For Zoom’s upcoming earnings, Zacks consensus estimate puts sales at $809.07m, a 329.8% increase year-over-year and 4.1% up on the previous quarter. Earnings per share are expected to grow 420% year-over-year to $0.78, although this would represent a fall of 21.2% on last quarter’s results.
Splunk’s last quarterly report revealed unexpected losses, leading many investors to wonder if it was time to sell the stock. Splunk’s share price closed the day after the earnings report down 23.3%. Zacks expects the company to just break even this quarter, with a consensus earnings estimate of $0.01 per share, but even this would represent a 99% fall year-over-year. Should Splunk underperform, investors may be spooked by a second disappointing set of results in a row.
On 2 December, Snowflake announced losses of $1.01 per share, in its sole earnings report since going public. This was slightly below expectations, and Snowflake’s share price fell 5% in after-hours trading on the day as a result, but it recovered by 16.1% to close 3 December at $339.89. Zacks expects sales to rise 12.1% in the upcoming results, with losses of $0.18 per share expected.
Clouds in the SKYY
These three companies, as well as other SaaS stocks, are included in many of the SaaS exchange-traded funds (ETFs) that can be found in the cloud computing theme on the Opto Thematic ETF Screener.
All three stocks are held by the First Trust Cloud Computing ETF [SKYY]. Of the three, Splunk is SKYY’s largest holding at 1.24% (as of 25 February), while Snowflake comprises 0.46% and Zoom 0.44% of the fund. The ETF has grown 4.8% in the year to date, with gains of 60.4% over the last 12 months.
The SPDR S&P Software and Services ETF [XSW] holds Zoom and Splunk, which both constitute 0.47% of the fund, and has grown slightly more slowly than the First Trust Cloud Computing ETF at 4.4% so far in 2021. It also trails the SKYY ETF slightly over the last 12 months, with gains of 56.7% over the period to 25 February.
XSW's YTD gains
What do the analysts think?
Zoom has a consensus rating of hold according to 28 analysts polled by CNN Money, 15 of which gave the stock this rating. Nine rated the stock buy, with two analysts rating it outperform and another two sell. Among 22 analysts offering 12-month price targets, the median target of $450 is 23.4% above the latest price.
Splunk was rated buy by 21 of the 38 analysts polled, with three rating it outperform, 13 hold and one sell. A median price target of $201.50, from a panel of 32 analysts, is 38.9% above the latest price.
Snowflake was rated hold by 15 out of 25 analysts, with nine rating it buy and one underperform. The 22 analysts offering 12-month price targets gave a mean target of $300, 15.2% higher than its 25 February closing price.