Software stocks Dell, Agora and Autodesk post mixed earnings

Software stocks are facing a challenging period, with Dell and Agora posting declining revenues and Autodesk just managing to meet analyst expectations. Dell has been hampered by a $1bn settlement payout to shareholders, and is cautioning that annual sales will be $600m below what was previously expected.

- Dell and Agora post declining revenues

- Autodesk meets expectations but lowers top-level FY earnings guidance

- Vanguard Information Technology ETF struggles year-to-date

Software stocks Agora [API], Dell [DELL] and Autodesk Inc [ADSK] delivered a mixed picture in their earnings results, announced this week.

In the weeks running up to their earnings reports, the stocks were already struggling. Agora, the Shanghai-based real-time audio and video solutions provider that powers invite-only social app Clubhouse, began a round of layoffs in October that reporters estimate could see 400 of its 900 employees cut (Agora denies the number will be this high). The company’s share price has plummeted 83.5% year-to-date.

Dell also approached its third quarter earnings in need of good news, following a $1bn settlement agreement to shareholders who felt the company misled them over its acquisition of EMC in 2016. On 18 November, Citigroup analysts lowered their price target for Dell from $60 to $55. The company’s stock has fallen by 20% year-to-date.

Citigroup analysts also took aim at Autodesk’s stock, lowering their target from $277.00 to $256.00, ahead of the 3D design and engineering software provider announcing its Q3 earnings. Autodesk’s share price has dropped 25.7% year-to-date.

Software firms report falling revenues for Q3

On 21 November, Dell reported non-GAAP diluted earnings per share of $2.30, beating analyst expectations by 43.75% and representing 38.6% growth year-over-year. Revenue, however, fell 6% year-over-year to $24.7bn. Reported net income recognised the $1bn settlement payment to shareholders.

On the same day, Agora announced revenues declining 9% year-over-year to $41m. Losses per share widened 31.58% over the same period, from $0.19 to $0.25. These revenue and earnings figures missed analyst expectations by 4.2% and 19%, respectively. Agora also lowered its full-year revenue forecast, from between $176m and $178m in the previous quarter to between $160m–162m.

Autodesk bucked the negative trend with a relatively positive set of results announced on 22 November. Revenue increased 13.7% to $1.3bn, in line with analyst expectations. Non-GAAP diluted net earnings per share of $1.70 also matched analyst expectations, and represented a 26.9% increase year-over-year. Autodesk’s board approved a $5bn share repurchase of the company’s stock in light of the results.

Dell and Agora share prices falls following earnings

Tony Zhao, founder, chairman and CEO of Agora, said his company had “delivered robust operational results this quarter despite a very challenging global macroeconomic environment”. Still, Agora’s share price fell 20% on 22 November, following the results.

Despite its strong earnings figures, Dell’s stock fell following the announcement because of a weak sales forecast. The company expects 2022 sales to fall around $600m below analyst expectations.

Dell’s CFO Thomas Sweet attributed the downbeat forecast to “ongoing global macroeconomic factors, including slowing economic growth, inflation, rising interest rates and currency pressure” depressing Dell’s clients’ IT spending plans.

Like Sweet and Zhao, Autodesk’s CFO Debbie Clifford also referenced the challenging macroeconomic environment when assessing the results, while acknowledging the reduced full-year guidance. She said: “Fiscal 23 revenue, margin, and earnings per share guidance remains close to the previous mid-points at constant exchange rates and comfortably within our prior guidance ranges.”

Fund in focus: Vanguard Information Technology ETF

The Vanguard Information Technology ETF [VGT] has fallen 25.2% in the year-to-date, highlighting the struggles that technology stocks have encountered during the year so far. Over the past month, however, the fund gained 6.3%.

As of 31 October, VGT holds both Autodesk and Dell, with weightings of 0.49% and 0.12%, respectively. With 367 holdings, its coverage of the technology industry is very broad.

There are currently 13 ETFs holding Agora, with the largest weighting of the stock in the SPDR FactSet Innovative Technology ETF [XITK] at 0.41%. The fund has fallen 48.6% year-to-date, but has made minor gains of 0.9% over the past month.

Analysts see the most upside for Agora, with 269% gains on the last closing price implied by the 12-month price target of $16.20 provided by one analyst reporting to the Financial Times. A median price target of $50.00 among 17 analysts reporting estimates for Dell implies gains of 14%, while 22 analysts reporting targets for Autodesk shares came to a median price target of $230.00, which implies 10.1% anticipated gains over the coming 12 months.