Zoom [ZM], Snowflake [SNOW], Salesforce [CRM] and Splunk [SPLK] released mixed Q2 earnings results this past week. Snowflake was the only stock of this cloud computing group to raise its full-year guidance, with the other three companies trimming back forecasts.
Major cloud software companies like Amazon [AMZN] and Microsoft [MSFT] have also reduced their forecasts, citing a stronger dollar. Rising economic uncertainty has led to a reduction in IT spending, which contributed to the gloomy outlook.
The tech-heavy Nasdaq and iShares Expanded Tech-Software Sector ETF [IGV] rose 0.4% and 0.6%, respectively, on 24 August following the earnings releases from Zoom, Snowflake, Salesforce and Splunk.
Zoom’s growing enterprise subscriber base
Changing habits post-pandemic saw Zoom’s Q2 revenue growth slow to 8% year-on-year, down from 12% in the prior quarter. With more workers returning to the office, the company is struggling to convince subscribers to stick around. “The big challenge is new customer additions,” CFO Kelly Steckelberg told MarketWatch following the earnings call.
The decline in demand for its online business led the company to trim its full-year sales guidance from as high as $4.55bn to between $4.385bn and $4.395bn, which would represent an approximately 7% increase on last year’s figure of $4.1bn.
The Zoom share price fell 2.1% after the results were released to close at $97.44 on 22 August – 23.3% above the 52-week low of $79.03 that it hit on 12 May. As of 24 August, the stock has plunged 54.5% year-to-date.
It wasn’t all doom and gloom for Zoom, though. Its enterprise subscriber base grew 18% year-on-year to 204,100. The number of subscribers contributing $100,000 or more came in 37% higher at 3,116.
Snowflake raises guidance despite headwinds
Concerns about competition and pressure on customer spending amid the inflationary backdrop prompted Karl Keirstead, managing director of UBS’ software equity research team, to downgrade Snowflake from ‘buy’ to ‘neutral’ last week. “The feedback was hardly a disaster, but we simply weren’t hearing such anecdotes a year ago,” he wrote in a note seen by MarketWatch in which he referred to conversations with a number of partners and customers.
There are ample reasons to be bullish about the software stock, though. In its Q2 results, the company grew total customers 36% year-on-year to 6,808, of which customers that contributed more than $1m jumped 112% to 246. Full-year product revenue growth guidance has been raised to a mid-point of $1.9bn, representing year-on-year growth of 67%.
On 24 August, Snowflake stock closed at $159.49 shortly before the better-than-expected Q2 results were released. When markets reopened on 25 August, the Snowflake share price opened 19.9% higher at $191.25 – its highest level since April. That said, the stock is still down 42% year-to-date, as of 25 August.
Salesforce announces $10bn buyback programme
Marc Benioff’s company delivered both an earnings and revenue beat for Q2 but disappointed investors as it issued lower-than-expected guidance amid lower client spending. The company revised down its full-year revenue target in light of increased cloud computing competition and a strengthening dollar. It is now targeting revenue of between $30.9bn and $31bn, down from $31.7bn to $31.8bn. The consensus on Wall Street is $31.73bn, reported Reuters.
The silver lining was that Salesforce announced its first-ever share buyback programme. It plans to repurchase $10bn worth of stock, which should boost its share-based compensation scheme as well as breathe new life into the shares.
“The stock has been under pressure over the last year and a half – that may have sparked it,” Anurag Rana, an analyst at Bloomberg Intelligence told Bloomberg TV. While the Salesforce share price is down 29.2% year-to-date, the stock rose 2.3% after the results were released on 24 August.
Splunk sees cloud slowdown in new business
Splunk announced in its Q2 earnings that it was expecting full-year revenue to be between $3.35bn and $3.4bn, slightly higher than the previously guided range of $3.3bn to $3.35bn. The company also raised its operating margin forecast guidance from 2% to 8%.
Despite beating estimates for the second quarter, the company warned of a slowdown. CEO Gary Steele said its products are “mission critical” but many of its customers had opted for shorter-term commitments beginning in the second half of the quarter due to budget pressures. This has resulted in lower-than-expected cloud adoption. As a result, it has revised full-year cloud annual recurring revenue from $2bn to $1.8bn.
The Splunk share price fell 1.9% after the earnings announcement on 24 August. The stock is down 4.6% year-to-date, though it gained 4.8% in the month leading up to the earnings report.
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