Cloud software stocks get boost, ServiceNow and Qualtrics Q4 earnings
Bill McDermott CEO, ServiceNow.
Adam Jeffery | CNBC
Perhaps cloud investors needed some reassurance.
After a hard stretch, which was seen only one cloud computing index tumble 38% from an all-time high in November, two key members of the group — ServiceNowAnd Qualtrics — delivered optimistic numbers on Wednesday, spurring an after-market rally in their share prices.
ServiceNow, which automates back office IT tasks and workflows with its software, saw an increase of 10% first-quarter resultsPositive outlook and a positive outlook for the coming year.
Qualtrics is a software company that helps businesses communicate with their customers and tracks the experience. Its stock soared past expectations to more than 9 percent. fourth quarterIt exceeded expectations by providing 2022 guidance.
The earnings season for tech stocks began in a downturn, and the Nasdaq was heading towards its worst month since 2008. Although the index fell 13% in January 2018, most companies reporting so far show signs of optimism.
After ServiceNow reported 29% revenue growth for its fourth quarter, Bill McDermott CEO of ServiceNow stated that “we are in a sustainable demand environment here”. He also predicted 26% increase in subscription revenue in the next year.
MicrosoftAnd IntelThey beat the bottom and top lines and outperformed estimates this week with their guidance. IBMAnd TeslaAlso, the results were better than expected. We are the only large-cap name that is notable. NetflixIt has disappointed investorsThe company was unable to predict subscriber growth, which is why its prediction came out far short of expectations.
Except for Netflix, this selloff is not about the fundamentals of business.
The prospect of rising rates is what has led to the plummet. This is The Federal Reserve on WednesdayIt indicated it is likely to increase its benchmark interest rate soon, and market pricing for four rate increases in 2022 according to CME’s FedWatch.
As investors move out of companies that did well in the bull market, cloud stocks are particularly affected. From the end of 2019 through October of last year, the WisdomTree Cloud Computing Index jumped 146%, while the S&P 500 rose 43% over that stretch.
These stocks have been being discarded by investors in favour of conservative financial and energy companies. Cloud companies have an opportunity to prove that growth is possible despite the recent trends in Wall Street and severe multiple compressions in parts of the market which were heating up.
Cloud stocks vs. broader market
Cloud services and digital technologies are being adopted by large companies, government agencies, and other organizations all over the globe. They allow employees and customers to work quicker and more effectively and enable them to make better use their data. The shift from legacy software spending to cloud computing is not expected to slow down.
Qualtrics CEO Zig Serbiafin spoke in his opening remarks on Wednesday. He stated that the company had a 10-year advantage in “experience management” and helping customers make decisions about their data.
Serafin stated that “our growth shows we have significant opportunities ahead” in an environment where customers can change service providers easily and employees leave at record levels.
Qualtrics saw a 48% year-over-year increase in revenue for the fourth quarter, and expects a 30% growth in 2022.
There are many opportunities for the cloud sector to show that higher interest rates and inflation fears have not yet affected demand.