3 Software Stocks Pummeled By Markets But Worth Considering As Q1 Earnings Loom
2022.05.04 11:00
The cloud software-as-a-service (SaaS) industry has gotten off to a tumultuous start in 2022, with the tech sector’s two main ETFs lagging the comparable returns of the NASDAQ Composite by a wide margin over the same timeframe.
The First Trust Cloud Computing ETF (NASDAQ:SKYY), and the Global X Cloud Computing Fund (NASDAQ:CLOU) are down 26.5% and 26.2%, respectively this year, compared to the NASDAQ’s year-to-date decline of 19.7%.
SKYY, CLOU, NASDAQ Chart
Despite the recent volatility, below we highlight three tech companies that have taken a beating recently which are worth considering ahead of their upcoming quarterly earnings reports as the group attempts to rebound from its latest selloff.
1. Cloudflare
- Earnings Date: Thursday, May 5
- EPS Growth Estimate: +133.3% YoY
- Revenue Growth Estimate: +49% YoY
- Year-To-Date Performance: -31.8%
- Market Cap: $29.1 Billion
With investors continuing to dump high-growth tech companies with lofty valuations, shares of Cloudflare (NYSE:NET) have come under heavy selling pressure in recent months.
After scoring sizable gains of 345% and 73%, respectively, during the coronavirus pandemic in 2020 and 2021, Cloudflare—which provides web security and infrastructure services—has seen its stock plunge about 32% year-to-date as worries over rising rates triggered a broad-based selloff in the tech sector.
NET is 59.5% below its record peak of $221.64 reached in November 2021, closing Tuesday’s session at $89.68. At current valuations, the San Francisco, California-based cloud-based networking and cybersecurity services provider has a market cap of $29.1 billion.
NET Daily Chart
Cloudflare, which shattered its sales record in Q4 and provided upbeat guidance, is slated to report first-quarter results on Thursday, May 5 after the closing bell.
Consensus estimates call for the cloud networking and security solution provider to deliver breakeven earnings per share, improving from a loss of $0.03 per share in the year-ago period.
Revenue is expected to climb 49% YoY to a record high of $205.6 million, reflecting ongoing demand for its web security, content delivery, and enterprise networking services and solutions.
Beyond the top-and-bottom line numbers, investors will keep an eye on Cloudflare’s large customer count to see if it can keep up its scorching pace of growth. The network security firm said the number of clients that spend at least $100,000 annually jumped 71% YoY to 1,416 in Q4.
We believe that shares of the once high-flying growth darling seem poised to take off again in the weeks ahead given the strong demand for its services amid the current geopolitical environment.
Not surprisingly, 13 out of the 25 analysts surveyed by Investing.com are optimistic on NET, forecasting an upside of 73% from current prices to $155.19/share.
NET Consensus Estimates
Just one analyst surveyed has a ‘sell’ rating on the name.
2. Palantir Technologies
- Earnings Date: Monday, May 9
- EPS Growth Estimate: -25% YoY
- Revenue Growth Estimate: +29.9% YoY
- Year-To-Date Performance: -42.1%
- Market Cap: $21.6 Billion
Palantir Technologies (NYSE:PLTR) provides data-analytics software and services to government agencies and large corporations. The company has struggled mightily this year as the once highly-regarded hi-tech firm fell out of favor with investors.
Shares of the Denver, Colorado-based enterprise software company have lost 42% year-to-date amid an aggressive reset in valuations across the frothy tech space sparked by the Fed’s plans to tighten monetary policy at a faster pace than previously thought.
PLTR—which fell to a recent 52-week low of $9.74 on Feb. 22—closed yesterday’s session at $10.55, roughly 77% below its all-time high of $45.00 touched in January 2021. The current market cap, based on these levels for the Peter Thiel-founded data-mining company is $21.6 billion.
PLTR Daily Chart
Palantir is scheduled to report first-quarter earnings ahead of the opening bell on Monday, May 9. The company delivered mixed results for profit and sales in the preceding quarter.
Analysts are calling for earnings per share of $0.03, declining 25% from EPS of $0.04 in the year-ago period. Revenue is forecast to increase about 30% year-over-year to an all-time high of $443.4 million, benefitting from the current robust demand for its data analytics tools and services.
Investors will pay close attention to growth in Palantir’s core government business, which accounts for more than half of its total sales. The segment saw Q4 revenue rise 26% from a year earlier to $239 million.
U.S. commercial sales and total commercial customer count, which surged 132% and 71%, respectively, in the last quarter, will also be in focus, as the big-data firm seeks to diversify its customer base. With 239 customers, Palantir aims to expand into various other sectors, such as health care, manufacturing, and energy.
In our view, the significant decline in Palantir’s stock—which has seen its market valuation drop by two-thirds—has created a compelling buying opportunity for the beaten-down name, given its outlook for accelerated revenue growth due to strong demand for its data-mining software tools.
Indeed, PLTR stock is undervalued at the moment according to InvestingPro models and could see an upside of approximately 17% over the next 12 months to its fair value of $12.31.
PLTR Fair Value Estimates
3. Unity Software
- Earnings Date: Tuesday, May 10
- EPS Growth Estimate: +20% YoY
- Revenue Growth Estimate: +36.6% YoY
- Year-To-Date Performance: -52.5%
- Market Cap: $20.1 Billion
Unity Software (NYSE:U), which provides a cross-platform game engine used to create, operate, and monetize interactive content for mobile phones, tablets, PCs, consoles, and virtual reality devices, has suffered a challenging start to the year amid the selloff in many top-rated tech companies.
Shares of the San Francisco, California-based videogame design and animation software developer recently plunged to their lowest level since going public in September 2020. U’s value has dropped 52.5% year-to-date, significantly underperforming the broader market.
At approximately 68% below its all-time high of $210.00 reached in November 2021, Unity Software stock ended Tuesday’s session at $67.87, giving it a market cap of $20.1 billion.
U Daily Chart
The videogame and tools developer easily topped expectations for earnings and sales in the last quarter. It is scheduled to report first-quarter financial results after the U.S. market closes on Tuesday, May 10.
Consensus calls for an adjusted loss of $0.08 per share, narrowing from a loss per share of $0.10 in the year-ago period. Revenue is expected to climb almost 37% YoY to a record $320.7 million, thanks in large part to the strong demand it has seen for its video game and digital content creation platform.
Market players will hone in on Unity’s update regarding the number of customers spending $100,000 or more on its platform after the key metric increased 33% to 1,052 in the last quarter.
In addition to the top and bottom-line numbers, investors will concentrate on comments from Unity Software’s management regarding the outlook for the months ahead. The tech firm previously said it expects to break even during 2023.
According to Investing.com, the average U stock analyst price target is around $139.50, implying a whopping 105.5% upside from current levels over the next 12 months.
U Consensus Estimates
Despite the recent pullback, we believe that Unity still looks like a good bet going forward, considering its position as one of the world’s leading platforms for creating interactive, real-time 3D content.
It is also set to benefit from its growing involvement in the emerging metaverse, which is viewed as the next-generation version of the internet.
