A half-dozen enterprise stocks reported earnings this week, but with the world in turmoil, the market gave them kind of a rough reception.
It’s hard to say what had the stock market in a tizzy, but it certainly wasn’t the companies’ straight revenue numbers, as all reported strong quarters:
There is a lot going on in the world right now, and the stock market has been on a rough ride so far this year. Maybe the negativity is just contagious.
Whatever the reason, the companies that reported positive results saw mixed reactions on the market. At the high end were Box and Splunk, with their stock up around 6% this week. That may not seem like much, but in the current climate (and especially given the stock market’s historically negative response to Box results), it was Wall Street’s equivalent of screaming praise from the rooftops.
At the opposite end, we find Snowflake, whose stock took it on the chin this week despite revenue growing at 101%, something most would consider robust. Instead of being pleased with that result, investors whacked the stock down as much as 30% at one point in after-hours trading. As of today, the company stock was down over 21% for the week.
Here are the five-day results for all six enterprise tech companies reporting this week as of noon ET :
We decided it would be worthwhile to dig in a bit into these different results and see what was happening underneath the financial hood, and if these companies truly warrant the reaction they got, or if Wall Street is just being skittish like the rest of us.
How to avoid Wall Street pain: Box’s earnings saga
Box being our example today of a company that made it through earnings unscathed is somewhat strange — the company spent much of 2021 locked in a battle with some of its shareholders, so you might not expect it to be in Wall Street’s good graces after such a bruising fight.
Yet, the company’s growth accelerated last year, it posted strong future revenue metrics – RPOs, billings, etc. – and it laid out guidance that was generally well-received. The result is that Box got through its quarterly report in good health, trading near all-time high prices.
Key in the Box earnings saga is accelerating growth from prior periods, or at least the maintenance of accelerated growth rates. The market is still treating growth as the key metric for software companies, even for those trading at lower multiples than their faster-growing peers.
For companies trading at higher multiples, market demands appear to be even higher. Splunk also had a good week, but as its earnings results included a CEO change-up, it’s a little hard to parse investor sentiment regarding the company’s results in contrast to its executive recasting.
The overwhelming demand for growth
Salesforce beat analyst expectations in its most recent quarter, and its forward numbers looked pretty good, too. The CRM giant’s about $7.38 billion guidance for its current quarter and about $32 billion for its fiscal 2023 were ahead of street expectations of $7.26 billion and $31.78 billion, respectively.
However, the company’s small after-hours gains in the wake of its upbeat report were not enough to keep its stock up in the following days. Salesforce is worth just over $200 per share as of the time of writing, off around $11 from its pre-earnings levels. That’s not a shellacking, but the valuation reduction shows just how hard it is to curry investor favor today.
A beat and guidance ahead of expectations for the current and coming periods are enough to earn a merely modest negative repricing in today’s market.
Nutanix’s stock has been in a lengthy descent since its value peaked in August and September 2021 to $44.50 per share. Today, the company is worth just over $25 per share, shedding around 4% after reporting earnings yesterday after the bell.
Did Nutanix miss expectations? Nope. It beat quarterly expectations for both revenue (growth) and earnings per share (profit), and it even provided a modest bump to its full-year guidance, putting it in line with expectations, per Yahoo Finance data.
It did share lower-than-anticipated current-quarter guidance, but with full-year numbers on target, you might have expected it to earn some credit with investors. It did not, and instead shed value, retreating closer to a 52-week-low of $23.33 per share.
The news gets worse from here. Okta and Snowflake had even bigger problems this week.
Let’s start with Okta. The user auth company had a good quarter — it beat expectations and even posted guidance for its next quarter ahead of expectations. But Okta also said that it anticipates “total revenue of $1.78 billion to $1.79 billion, representing a growth rate of 37% to 38% year-over-year” in its fiscal 2023. The street, again per Yahoo Finance data, had expected $1.77 billion.
That’s not very much ahead of expectations, but it was still not enough to protect the company from investor wrath. Shares of Okta are off around $20 per share since its earnings report, falling to around the $161 level.
Snowflake only guides on product revenue, a majority subset of its aggregate top line, so there’s some nuance to its numbers. Still, the company’s most recent quarter beat analyst expectations. It was in the guidance department that the company fell short of expectations – kinda.
In its earnings report, Snowflake said it expects product revenue to rise 66% this year from a year earlier. This comes after it posted triple-digit growth in product revenue in fiscals 2020, 2021 and 2022. So did the company under-guide? CNBC notes that the market had in fact expected 66% growth in that department, so the answer appears to be “no.”
Altimeter Capital’s Jamin Ball said on Twitter that the company’s “implied total revenue guide is in line with total [revenue] expectations.” So, if the company is decelerating in keeping with expectations, why did its stock shed around $50 per share in the wake of its report?
Ball has the correct take, arguing in the same tweet that merely in-line guidance for “high-growth software is considered a miss” by investors today. What do they want to see? Better forecasts, per Ball. In other words, investors are demanding faster-than-anticipated growth numbers to support prior valuations, and merely meeting expectations is a recipe for share-price collapse.
Good growth is what the market now expects. If a company wants to hold on to some of the premium that software companies garnered last year, it will have to do more than merely grow quickly. It needs to forecast numbers better than the numbers investors have penciled in. Or else their valuation is at risk of more than a mere haircut.
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