It’s been a rough week. After the Supreme Court leak, way too much layoff news, the stock prices of the largest tech companies in retreat and a general feeling that the economy is going in the wrong direction, it’s easy to think everything sucks.
But we’re here to lift your spirits a little, at least to tell you that it’s not all bad news. There are companies that are still doing quite well, and we wanted to spotlight four that had strong earnings reports this week.
While it’s easy to think everyone is suddenly on a train to nowhere, recent earnings reports from several software companies are proof that we still have tech shops growing at a high rate. How high? Some were above 50%, and 60% growth was not unheard of.
What’s more, the companies we’re looking at today largely shared positive guidance. And yet, even with positive earnings and a favorable outlook, the companies received treatment from investors ranging from noncommittal to downright hostile.
There’s an argument to be made that some tech companies could fare a little better in a recession or similar macroeconomic slowdown than some seem to anticipate today; the lessons of mid-2020 may need to be relearned, in other words.
Let’s look at results from Cloudflare and Confluent to gauge how the market is treating even results that seem pretty darn solid. We’ll also look at Amplitude, a company that took huge lumps after its Q4 2021 earnings report and was therefore doing a little bit of makeup work in its latest financial report, and close with Appian.
Cloudflare
Cloudflare’s Q1 2022 earnings report is a good marker for the state of play. How so? The company bested revenue expectations in the recent period, posting a top line worth $212.2 million, far ahead of expectations of around $205 million. That’s the sort of growth result that would have been electric last year.
For those of you keeping score at home, Cloudflare’s Q1 revenue rose 54% over the previous year. There was other good news, too, like adding 14,000 new customers in the period. What’s more, customers spending at least $500,000 grew 68% and those spending $1 million or more grew 72%.
As CEO and co-founder Matthew Prince put it, Cloudflare’s best customers continued to grow, bringing in more revenue. Furthermore, the company’s guidance doesn’t indicate signs of slowing.
Yet Cloudflare’s report disappointed investors, perhaps not what you expected given its strong growth in the first quarter. Why? MarketWatch notes that the company’s Q1 loss was greater than anticipated and that investors could be concerned that the company could lose money even on an adjusted basis in Q2 — the street had more of a breakeven result in mind.
Still, Cloudflare raised its full-year revenue guidance by around $30 million to between $955 million and $959 million, as it approaches the magic $1 billion level. The market’s reaction to Cloudflare’s results shows just how expectations have changed. Better-than-expected growth but less profitability in the near term? That’s punishable by a roughly 17% selloff these days. Talk about brutal reactions.
Confluent
But Cloudflare is not alone. Confluent got hit, too, falling nearly 16% on Friday. What is exactly happening here?
Did the company miss massively in Q1? Nope. Confluent bested revenue expectations in Q1 with some $126.1 million in total top line, against an anticipated $118.5 million, the AP reports. The technology company also lost a few cents less per share on an adjusted basis than expected.
That’s an impressive growth rate of 64% year on year, a number that normally pleases investors, who like to see strong growth. Even more impressive was the massive expansion the company experienced in the cloud, with its SaaS product revenue up 180%, representing almost a third of all revenue.
Those numbers are hardly a mess. So did guidance upset investors? Nope. CFO Steffan Tomlinson forecasted sturdy revenue growth ahead, albeit a bit slower than the first quarter. “For the second quarter of 2022, we expect revenue to be in the range of $130 million to $132 million, representing growth of 47% to 49% year over year,” he told analysts in an earnings call.
For the current year, Confluent projections look decent. “For the full year 2022, we now expect revenue to be in the range of $554 million to $560 million, representing growth of 43% to 44% year over year,” he stated in the call.
So, again, we see a company beat what was expected of it, only to get whacked hard by the public markets.
Our goal today was to find a little good news in the mix. The silver lining, if you will. Thus far the most joy we can uncover is that despite public-market mayhem, many tech companies are chugging along in good form. It’s just that investors have found a way to talk themselves out of their equity, effectively flipping the 2020-2021 script, when it appeared that investors were talking themselves into tech shares at any price.
Amplitude
Amplitude is a company that has had a busy early life as a public company. Its share price reached $87.98 after its 2021 IPO. The company suffered a huge decline in value after its fourth-quarter earnings were received with a raspberry. Shares of the company fell from the low $40s to the high teens, low $20s.
Happily for Amplitude shareholders and employees, the company’s latest earnings report did not engender another negative reaction. Not really. But investors weren’t exactly enthused, with the stock price remaining flattish on Friday.
Amplitude posted revenues of $53.1 million, up 60% from year-ago results. And as the media noted, it bested per-share profit expectations by losing 3 cents per share less than anticipated. The company’s Q2 revenue targets of $54.5 million to $55.5 million are under analyst expectations, but the company’s full-year guidance brackets aggregate 2022 analyst views.
All told, that’s a pretty solid mix of numbers, although with slightly slower-than-anticipated Q2 growth. In a call with TechCrunch, Amplitude CEO Spenser Skates stressed the breadth of customer demand across sectors, international revenue growth strength (slightly faster than domestic) and the company’s success with the “land-and-expand” model. Regarding rising expenses, Skates said that his company is making up for limited spending during COVID and that Amplitude is modeling a three- to five-year target of 10% free cash flow margins. (We’re disregarding boosted year-on-year general and administrative spending because going public is not cheap.)
So what does this all mean? Our read of the company’s results, expectations and the market reaction is that Amplitude has been repriced to a new neutral point. This means that the pain may be over for the company; now it’s up to Amplitude to show that the digital transformation wave that it is riding will keep piling up growth in its income statement.
There is an indication that that will be possible. In its Q4 report, Amplitude said that it expected 2022 revenues of $226 million to $234 million; in its Q1 2022 report, those numbers ticked up to $229 million to $235 million. Not a lot more, but enough to indicate that the trend is positive when it comes to Amplitude’s trajectory from the prior baseline.
So the good news is that Amplitude got through an earnings call after its shellacking three months ago. Furthermore, its revenue base appears broad, and growth is on the upswing from prior estimates. Why is Amplitude doing as well as it is given investor pessimism, at least relatively? Well, let’s talk about that by looking at another company with a decent quarter.
Appian
Appian’s Q1 2022 was solid. The street had expected revenues of $107.3 million, while the company reported top line of $114.3 million. And Appian guided to around $103 million for Q2 revenue at midpoint, ahead of a market-anticipated $101.3 million.
Shares of Appian were up a smidge Friday, despite the market chop, after reporting Thursday evening.
TechCrunch also spoke with Appian CEO Matt Calkins in the wake of the earnings report, with the technology executive saying that his company has pricing leverage in its pocket and that a history of bootstrapping has given it the DNA required to cut back on costs if needed.
In the same conversation, Calkins also argued that his company’s product, low-code process management, is not a “luxury” or an “extravagance,” but instead a way for companies to save money, adapt to difficult times and quickly derive return from investment by squeezing more efficiency out of internal processes. Software, in other words, that helps companies do more, more quickly, and perhaps more efficiently (and, therefore, more cheaply) could wind up holding up well in a downturn.
It’s not clear what markets are looking for from software companies right now. You want growth? We got that. You want positive guidance? We’ve got that too. You want market expansion and more customers? Check and check.
The fact is that while these companies may not be fully insulated from economic upheavals that appear to be ahead of us amid rising interest rates, inflation, and possibly even recession, there are some services that you absolutely can’t skimp on, and in the software world, things to do with process efficiency, data, security and overall performance are must-haves in 2022, regardless of the economic climate overall.
The lesson from Appian, and to a degree Amplitude (app performance), Cloudflare (website and web service speed and security) and others is that software growth is still good because software still matters. And if we do see a recession, certain software concerns could wind up holding onto growth rates more securely than other businesses. In that scenario, we might see the markets give the above companies a second report card for their prior results — not that we’ll pop back to 2021 valuations, but there could be something of a revision. It would only seem logical that companies growing in spite of a shrinking overall economy would deserve that benefit of the doubt, but investors are surely in a more conservative stance than they have been in some time.
But the good news is that the world still needs software, and even some of the companies that have taken lumps have solid growth stories. It’s just that today, even strong results aren’t enough to shake off investor malaise. We’ll see how the climate evolves this year, but the news isn’t all bad, even if the stock market is.
Comment