Earlier this week, public cybersecurity companies’ quarterly results left us scratching our heads as to why there isn’t more venture capital investment piling into security startups. In an environment where revenue is tough to drive, stand-out tech sectors should surely be sailing with the wind if there is lots of proven demand?
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This morning, I want to broaden our perspective and use a grip of new quarterly results from a more varied group of companies to state that things aren’t actually that bad for tech companies. New data from Salesforce, Zuora, Okta, Nutanix and Snowflake makes it plain that several tech sectors are doing better than a lot of people expected.
Understandably, that’s driven up share prices for some key startup comparables and resulted in better vibes for tech valuations in general. Let’s talk turkey:
Salesforce
Salesforce reported revenue of $8.72 billion in the third quarter of its fiscal 2024, in line with analysts’ expectations. That worked out to an 11% gain at the SaaS giant, which is not an astounding figure, especially as the company expects to generate revenue of $9.18 billion to $9.23 billion in the current quarter, which works out to an increase of about 10%.
So why is Salesforce’s stock up more than 9% this morning? It beat profit expectations for Q3, forecast Q4 revenue largely in line with estimates, and boosted its profitability forecast for its full fiscal year.
Salesforce may no longer be the growth juggernaut that it was, but it’s a cash-generating machine that is pouring its excess capital into buying back its stock, and investors dig its improving profitability.
Zuora
Zuora reported better-than-expected revenue and profit (albeit not by much) in Q3, and its shareholders seem happy, sending its stock up 19% in early-morning trading today. The company’s revenue growth rate still leaves much to be desired and its cash flow was hammered by costs related to a shareholder lawsuit, but better-than-expected results are just that. As with Salesforce, there’s no shortage of good vibes here.
Nutanix
Nutanix beat expectations on both revenue and adjusted profit, spurring its stock up about 8% this morning. Even more, its revenue forecast for both its current quarter and the full year came in ahead of street estimates. So, the company is both making more money and growing more quickly than analysts expected it to. That’s excellent!
Snowflake
The data company has been a leading software stock since it went public thanks to its mammoth post-IPO growth curve. Snowflake is still at it, beating expectations for revenue growth in Q3 fiscal 2024, and forecasting Q4 revenue ahead of expectations. Its shares are up 8% this morning.
It doesn’t hurt that the company is also lowering its cost base as a portion of revenue and seeing its free cash flow margin expand as it scales. Operating leverage is investor catnip, and Snowflake has enough for a whole litter of kittens.
Okta
This is the weird entrant in our group. Okta reported better-than-expected revenue and adjusted profit in the third quarter, but its shares are down 3% this morning due to a cybersecurity incident that is proving to be an increasingly painful thorn in its boot. Still, its finances look pretty good.
Things are looking up
All told, our hypothesis that 2024 could be a recovery year for tech performance is shaping up reasonably well. CRM, subscription software, enterprise cloud, data cloud, and identity all share the SaaS business model but are otherwise differentiated enough from one another to allow us to deem the trend as a positive one for tech.
Feels nice, yeah? For quarter after quarter, it seemed that tech was in a funk, and investor expectations were changing as quickly as things got worse. Now it feels like we are near the end of that period.
Go forth and kick ass, startups; we’ll be calling.
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