As I think about what we’ve seen so far from companies that have reported earnings, what have we learned and what are the common themes: lengthening sales cycles, smaller deals, customers budgets are tighter, customers going out of business, higher churn rates, more top down selling, customers scrutinizing every spend.
Regardless if you are either AYX or if you are DDOG, you are seeing some covid headwinds (of different magnitude). AYX is less critical to a company than say, DDOG, and DDOG is less critical than CRWD/Okta. Problem is, all of their products cost money. Even though it’s pretty clear to all of us and many companies that AYX saves companies money, companies are cutting existing spend and delaying new spend. Even though the monitoring capabilities that DDOG provides are priceless to software engineers, customers cut back. The cost saving and survival mode that a lot of companies are in now has showed up in the weaker revenue numbers for both DDOG and AYX.
I’m not trying to say everyone panic and sell all your shares of CRWD (I’ve been buying slightly more of it lately). But what I’m saying, is that we are receiving new data from other companies releasing earnings that support the hypothesis that CRWD, COUP, and OKTA are not going to report quarters that are as good as they have been in the past. Perhaps, this is the beginning of an argument that companies who are clearly and heavily benefitting from covid (such as ZM, TDOC, SHOP, FSLY, NET) are relatively better from a risk/reward perspective in the short term/medium term than companies more likely to hit headwinds, such as CRWD,OKTA, and COUP.
If I pick on CRWD, I could argue that even though end point security is considered mission critical, CRWD is a more expensive solution. Companies might be more inclined to choose a cheaper CRWD competitor. Or, companies may drag out decision processes in order to scrutinize spend better. I could make similar arguments for Okta and Coupa.
Maybe I am overthinking this – after all, all of these stocks have seen stock price decreases in recent days along with lots of other growth stocks. Maybe the earnings results of DDOG and AYX have already been baked into the prices of OKTA, CRWD, etc.
The greater point I’m trying to make is, is that a formerly bullet proof stock such as DDOG showed some signs of covid related weakness. Maybe these short term problems will also hurt our companies who have yet to report earnings.
My understanding is that Ping is Okta’s closest competitor, and rather inferior to okta. Regardless, there will probably be some correlation to how Okta’s numbers will be when they report later this month, so I will be watching tomorrow when they come out.
I know that we really try to be long term investors, so we should not let these thoughts cloud our vision too much. But sometimes, the short term can become the medium term (like with ayx), and can ultimately lead to me reducing my exposure, and perhaps you too. And even though I wouldn’t make an investment decision solely on these hunches, I do think it’s worth discussing and thinking about. Would love to hear others thoughts on this matter.
One final thought – another hunch I have, is that because SHOP and other companies have said covid related boosts started to wane in June/July, maybe ZM’s boosted numbers are also starting to wane. Maybe covid trends are cooling off. This might not hurt zm’s current quarter so much, but it might get reflected in weaker than expected guidance.