When releasing their latest set of earnings results this week, cloud companies Splunk, Salesforce and Veeva all beat analyst forecasts. With growth forecasts also remaining upbeat, this could turn around their disappointing share price performance in the year so far.
- Revenue beats announced for Splunk, Salesforce and Veeva
- Cloud sector has suffered in 2022, but analysts forecast healthy future growth
- First Trust Cloud Computing ETF offers exposure to all three stocks
US security data platform company Splunk announced its third quarter earnings on 30 November 2022, reporting that total revenues grew by 40% year-over-year to $930m. This beat the Zacks consensus estimate of revenues of $845.9m by 9.9%.
Year-to-date, Splunk’s stock has tumbled 20.9%. However, markets reacted positively to the results, with the share price leaping up 17.8% the day after.
Salesforce also announced its results for Q3 for fiscal year 2023 after the close of trading on 30 November. The cloud-based business software firm announced revenue of $7.84bn, a rise of 14% year-over-year. Year-to-date, Salesforce’s share price has sunk 42.2%.
California-based Veeva Systems announced its Q3 earnings for FY 2023 on 1 December. Revenues came in at $552.4m, up 16% from a year earlier. Veeva’s share price was down year-to-date by 25.1% to the close on 1 December, slightly ahead of its two cloud peers.
What’s driving cloud revenues?
All three companies saw signs of healthy growth in the last few months. At its earnings, Splunk reported its cloud revenues jumped up by 54% compared to the same period in 2021, to $374m. It also announced 754 customers with total annual recurring revenues (ARR) greater than $1m, up 19% year-over-year.
Meanwhile, Salesforce CEO Marc Benioff praised what he called a “solid quarter.” The company announced full-year 2023 revenue guidance of $30.9bn to $31bn, a jump of 17% year-over-year. Salesforce also repurchased shares worth $1.7bn from shareholders during Q3. On the day of its earnings, Veeam Software announced that it was launching a backup for Salesforce on the company’s AppExchange, which expedites data recovery in the event of loss.
The day following its earnings, however, the Salesforce share price was down by 8.3% on 1 December upon news that co-CEO Bret Taylor will be stepping down.
Veeva Systems, which provides cloud solutions for the healthcare industry, announced that its subscription services revenues of $441.6m rose by 16% compared to the same period in 2021.
Cloud stocks set for growth
Despite share price falls this year, the cloud computing sector is forecast to grow significantly. According to research by Grand View Research, it was worth $369bn in 2021 and is expected to grow at a compound annual growth rate (CAGR) of 15.7% from 2022 to 2030.
Nevertheless, challenges remain in the near-term, with Jefferies analyst Brent Thill recently saying he sees “factors such as foreign exchange rates and larger economic headwinds weighing on [Salesforce’s] revenue growth prospects”.
Since 2018, Salesforce has been acquiring other software companies like MuleSoft, Tableau and Slack, racking up expenditures of $50bn.
Thill is more positive in his analysis of Splunk, calling it his "top value pick," having “undergone a major cloud business model transition," and moving past "the worst of the financial headwinds." He retained a ‘buy’ rating and $100 12-month price target on the stock, a 9.3% rise from its last closing price of $91.49.
At MarketBeat, Veeva is rated a ‘moderate buy’ by a consensus of 23 analysts, with Goldman Sachs decreasing its 12-month target price to $205 in October, a 7.1% upside from its last close.
Fund in focus: First Trust Cloud Computing ETF
The ETF with the largest allocation of Splunk stock is the ETFMG Prime Cyber Security ETF [HACK], where it has a current weighting of 4.66%, sitting as its eighth largest holding as of 1 December. The fund is down 22.6% year-to-date, but up 2% in the past month.
The ETF holding the most Salesforce stock is the iShares Expanded Tech-Software Sector ETF [IGV], where it is the top holding with a weighting of 9.12% as of 30 November. The fund is down 30.9% year-to-date, but up 4.1% in the past month.
Veeva Systems shares have the biggest allocation in the Sterling Capital Focus Equity ETF [LCG], with a portfolio weight of 4.43%, and is the 11th-largest holding as of 1 December. So far in 2022 the fund has dropped by 29%, but has gained 8.3% in the past month.
All three stocks are held in the First Trust Cloud Computing ETF [SKYY], where Splunk has a weighting of 1.70%, Salesforce has 2.02% and Veeva a modest 0.63% of the fund as of 30 November. The fund has tumbled by 38.6% year-to-date, and risen a marginal 0.4% in the past month.
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