Cloud Software Stocks Get Boost, ServiceNow and Qualtrics Q4 Earnings





Bill McDermott, CEO of ServiceNow.

Adam Jeffery | CNBC

Perhaps cloud investors just needed some reassurance.

After a brutal period in which a cloud computing index fell 38% from a record high in November, two key members of the group – ServiceNow and Qualtrics – delivered bullish numbers on Wednesday, triggering an aftermarket rally in their stock prices.

ServiceNow, whose software automates back-office IT tasks and workflows, rose 10% on better-than-expected first-quarter results and an optimistic outlook for the year.

Qualtrics, a provider of software that helps companies communicate with customers and track their experience, climbed more than 9% after its previous estimates for the fourth quarter and beating expectations with its 2022 guidance.

Tech stocks entered the earnings season on a downward spiral, with the Nasdaq heading for its worst month since 2008. The index is still down 13% in January, but most companies that have reported so far have shown signs of showed optimism.

“We’re in lingering demand here,” ServiceNow CEO Bill McDermott said on the earnings call after his company reported 29% growth in the fourth quarter and forecast 26% growth in subscription revenue for the year.

Microsoft and Intel beat the top and bottom this week, beating estimates with their guidance, while IBM and Tesla also reported better-than-expected results. Of the most notable large-cap names, only Netflix disappointed investors, as the company’s forecast for subscriber growth fell well below estimates.

Proving time for cloud stocks

Aside from Netflix, the sale wasn’t about business fundamentals.

Rather, the plunge has been largely attributed to the prospect of rising interest rates. The Federal Reserve on Wednesday indicated it will likely raise benchmark rates for the first time in more than three years soon, and the market is projecting four rate hikes in 2022, according to the CME’s FedWatch tool.

Cloud stocks have been hit particularly hard as investors abandon the companies that performed best during the bull market. From late 2019 to October last year, the WisdomTree Cloud Computing Index rose 146%, while the S&P 500 rose 43% over that stretch.

Investors have recently ditched those stocks in favor of more conservative companies in the energy and financial sectors. Despite the trends on Wall Street and severe multiple compression in the parts of the market that overheated, cloud companies now have a chance to show that the growth story remains intact.

Cloud Stocks vs. Broader Market

CNBC

Businesses, government agencies and large organizations around the world continue to use digital technologies and cloud services that help their employees and customers work faster and make better use of their data. There is no end in sight for the shift in spending from legacy software to the cloud.

In his opening comment on Wednesday, Qualtrics CEO Zig Serafin said his company is “a 10-year lead” in what it calls experience management and helping customers take action with their data.

“Our growth demonstrates that we also have a significant opportunity in a world where it is easier than ever for customers to switch providers and where employees are leaving their jobs in record time,” said Serafin.

Qualtrics reported a 48% increase in year-over-year revenue in the fourth quarter and forecast growth of at least 30% for 2022.

The cloud sector has plenty of opportunities in the coming weeks to prove that inflation and fears of higher interest rates are not yet hurting demand.

Software collaboration vendor Atlassian will report results on Thursday, followed by Bill.com, Paycom, Twilio, Datadog and Freshworks in early February.

WATCH: Microsoft continues to move in the right direction




Leave a Comment