Q2'21 Earnings Preview - Enterprise Software

I decided to follow up with another earnings preview post, since the last one was well received[1]. The purpose of this post is to provide a high-level overview of how Q2 earnings can unfold based on the leading indicators that we have. This should definitely be an interesting quarter, as it is the one-year lap from the “peak Covid” quarter.

While I hope that this analysis is somewhat useful, it is important to remember that this is an extremely simplistic, top-down view. Companies and their business performance cannot be compared apples to apples. This analysis also lacks an assessment of margins, profitability, customer adds, and many other indicators that are discussed at length in the individual earnings posts on this board.

Pt. 1 – A Look Back at Q1 Results
The strongest “real revenue beat” came from Docusign, while Crowdstrike disappointed the most. From a guidance standpoint, Okta surprised the most, while Snowflake was the biggest disappointment. Finally on deferred revenue, Zoominfo was the biggest surprise, while Snowflake again came last.[2]


Company		Real Revenue Beat[3]		Guidance Beat over Consensus[4]		Deferred Revenue Beat over Consensus
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Docusign		3.1%				1.6%						13.0%
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Twilio			1.7%				3.0%						N/A
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Zscaler			1.3%				7.0%						5.8%
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Asana			0.3%				10.7%						14.7%
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Zoominfo		-0.7%				4.9%						19.5%
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Cloudflare		-1.0%				5.0%						12.4%
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Datadog			-1.8%				7.8%						4.1%
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Okta			-2.3%				14.5%						14.6%
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Crowdstrike		-2.8%				4.4%						3.4%
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Zoom			-3.1%				5.6%						1.3%
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Snowflake		N/A				0.8%						-2.4%
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Monday			N/A				N/A						N/A
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UiPath			N/A				2.9%						N/A
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Shopify			N/A				N/A						N/A
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Pt. 2 – Q2 Expectations[5]
We begin this week with the cloud titans reporting, so we’ll get insights on GCP and Azure on Jul-27, followed by AWS on Jul-29.


Company		Earnings Date		CY21’Q2 Rev Growth Guidance		Avg Rev Guidance Beat (%)
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Snowflake	TBD (late Aug)			78%					9.00%
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Crowdstrike	TBD (early Sept)		62%					6.90%
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Asana		TBD (early Sept)		57%					9.40%
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Datadog		Aug-5				51%					8.20%
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Zoom		TBD (early Sept)		49%					8.4% [6]
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Twilio		Jul-29				49%					9.60%
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Okta		TBD (late Aug)			48%					7.60%
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Zscaler		TBD (late Aug)			48%					7.10%
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Cloudflare	Aug-5				46%					6.60%
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Zoominfo	Aug-2				46%					6.20%
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Docusign	TBD (early Sept)		41%					5.30%
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Shopify		Jul-28				TBD					5.3% [7]
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Monday		TBD				TBD					N/A
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UiPath		TBD (early Sept)		31% [8]					N/A
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Pt. 3 – Projected Growth Endurance
Cloudflare and Datadog are expected to suffer the less revenue growth decline over the next twelve months, while Shopify and Zoom are expected to observe the most significant drops. It’s worth remembering that historically, analysts have been very poor at projecting growth endurance. The ones that are able to “disprove” their growth decay will likely observe strong share price appreciation[9].

It is also worth observing how much the law of large numbers is projected to kick in here. Cloudflare, Datadog, Asana, Zscaler and Zoominfo all reported quarterly revenue of <$200M, while Zoom and Shopify reported nearly $1B. Clearly, it is much more difficult to sustain a high growth rate at a larger business, although Shopify has surpassed expectations again and again.


Company		LTM Revenue Growth	Consensus NTM Revenue Growth	Projected Growth Endurance
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Okta			40%			48%				120% [10]
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Cloudflare		51%			38%				75%
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Datadog			58%			43%				74%
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Asana			58%			41%				72%
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Zscaler			54%			38%				71%
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Zoominfo		55%			37%				68%
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Snowflake		116%			77%				66%
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Docusign		54%			35%				65%
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Twilio			57%			36%				64%
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Crowdstrike		77%			48%				62%
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Monday			95%			50%				53%
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UiPath			75%			34%				45%
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Shopify			100%			36%				37%
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Zoom			296%			26%				9%
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Pt. 4 – Market Sentiment
I will repeat the caveat that this analysis is a macro-viewed oversimplification of business performance. That being said, with this context – we get nuggets of partial explanation for share price movements over the past few months.


Company		Biz Days since Earnings		Share Price Change Since Earnings	CDGR Since Q1 Earnings		Share Price Change YTD
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Asana			37					97%				1.8%				149%
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Cloudflare		57					70%				0.9%				57%
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Shopify			63					28%				0.4%				50%
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Docusign		37					58%				1.3%				39%
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Crowdstrike		37					25%				0.6%				34%
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Twilio			58					22%				0.3%				22%
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Datadog			57					56%				0.8%				22%
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Zscaler			44					38%				0.7%				22%
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Zoominfo		60					8%				0.1%				18%
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Okta			43					5%				0.1%				3%
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Zoom			39					10%				0.2%				0%
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Snowflake		43					13%				0.3%				-5%
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UiPath			34					-16%				-0.5%				N/A
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Monday			N/A					N/A				N/A				N/A
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Pt. 5 – Expert Perspectives
GP Bullhound notes “As the world continues to move online, we saw numerous trends emerge, continue and even escalate in Q2. **Identification technology is growing as businesses look to reduce fraud, and companies are utilising sales-assisting SaaS to increase deal-making success. Outsourced big data handling is in high demand as companies aim for faster data-driven decisions, and logistics and retail businesses are focusing on applying machine learning solutions to optimise inventory management and merchandising.**We are bullish the Cloud will continue to grow rapidly over the next several years in all areas of enterprise and B2B.”[11]

BVP notes “One thing is clear — a wave of startups enabling the next generation of data-driven businesses is on the rise, as they offer better and easier-to-use infrastructure for accessing, analyzing, and furthering the use of data…We believe we are still in the very early days of a revolution in the data stack. Just as the cloud changed the way we work today, harnessing data through modern cloud-native infrastructure is becoming essential to companies of all sizes and industries.”[12]

ScaleVP notes “The majority of enterprise security leaders (63%) responded to the events of 2020 — a year bookended by the pandemic and the SolarWinds cyberattack — by increasing budgets to fortify their organizations against security threats, with 45% of those nearly doubling spend. Headcount also expanded, growing by 40% last year alone.This data underscores a central theme in the report: Security departments have more resources and visibility inside their organizations than ever before. But those resources are stretched very thin.”[13]

Morgan Stanley published their 2Q21 CIO survey results. The most relevant bullish findings are that “CEOs expect software to be the fastest growing segment in 2021,” and “cloud computing and digital transformation top the priority list, followed by security software moving from #4 to #3.” Less bullish is CIOs expectation that "total applications expected to run in the public cloud by 2023 to be 37%, down from 49% a year ago.” MS indicates that this may reflect “more realistic expectations from CIOs.”[14]

-RMTZP
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[1] https://discussion.fool.com/q1392021-earnings-preview-34819176.a…
[2] Some of Snowflake’s guidance and deferred revenue disappointment might be the result of analysts undermining the strong seasonality of Snowflake’s billing cycle
[3] “Real revenue beat” is the extent the company beat its guidance, compared to its usual guidance beat
[4] “Guidance beat over consensus” is extent guidance was beat, compared to consensus analyst expectations. We know analysts are far from perfect, but it provides a baseline to compare a company’s guidance against
[5] I noticed that I incorrectly stated the “average revenue guidance” beats on my last post. I had included their average guidance beats over investor presentations rather than comparing their revenue results to their own estimates – apologies.
[6] Excluding three Covid outlier quarters in 2020
[7] Excluding 2020 as Shopify refrained from providing guidance
[8] ARR is a better metric than revenue growth here, but they don’t reveal quarterly ARR in their S1. My guesstimate is that their ARR was ~$450M last year, so their ARR growth would be 57%
[9] https://twitter.com/jaminball/status/1369757359728250881
[10] Includes large inorganic acquisition (Auth0)
[11] https://www.gpbullhound.com/insights/q2-2021-software-insigh…
[12] https://www.bvp.com/atlas/roadmap-data-infrastructure/?from=…
[13] https://www.scalevp.com/blog/here%E2%80%99s-what-cisos-are-b…
[14] Morgan Stanley Access Verification (ms.com)

91 Likes

Awesome.

“… It’s worth remembering that historically, analysts have been very poor at projecting growth endurance. The ones that are able to “disprove” their growth decay will likely observe strong share price appreciation…

This is one of the reasons why I still have about a 6% position in Shopify. I think the recent “digital transformation” is actually a bit more of a predictive indicator of the whole growth picture, rather than a past event here. As discussed in detail in previous threads, SHOP has so many ways of sharing in the success of their merchants (this is basically the company motto). They’ve experienced impressive growth and I believe those new merchants are still growing and adding on new features that in turn create expanding revenue growth for SHOP. In other words, the impact of the last year of growth is still filtering through their various revenue streams. It should be pretty easy to see if I’m wrong when they report earnings since this is measured by stuff that is broken out, like payment processing and app subscriptions and such. I also want to see that their margins improve as all of this should scale with very little friction.

7 Likes