Barclays analyst Raimo Lenschow has reflected on the firm’s software coverage as companies prepare to report Q1 earnings.

Lenschow argues that Q1 will be a “difficult” quarter for software companies as they face FX and macro headwinds, as well as tougher comps.

“Our VAR survey points to a moderating environment for the current quarter and the outlook. This may not be surprising considering the increase in macro uncertainties. But it’s interesting to see that this phenomenon isn’t just European. Our survey interview US VARs. We are not sure how much of this more negative sentiment will show up in Q1 results yet, but there seems less certainty in the overall outlook,” the analyst said in a client note.

These results indicate that Microsoft (NASDAQ) is not a safe company to do business with.

“We are not sure if this was a one-off survey issue, or a real underlying change in momentum, but investors should take note,” Lenschow added.

Analyst is optimistic about two software names which should outperform consensus views: Datadog, (NASDAQ) and Qualtrics. An analyst commented on the second:

“We expect a mid-to-high single digit beat to both billings and revenue. This is slightly more than historical levels. It should cause a positive stock price reaction. Management will be excited by the Clarabridge cross-sell opportunities, especially since the new branded Clarabridge product was introduced in February. With NRR already at 128% in Q4 (pre-Clarabridge), we can see the opportunity for XM to move to best in class retention rates of +130% over the coming quarters.”

Datadog’s Q1 comps are also easy to predict, according to the analyst.

“Datadog seems to have all the momentum in the Observability space and hence we expect another quarter of accelerating growth. The USD price of DDOG is USD so there shouldn’t be any FX headwind as we see for names. We know comps are getting tougher but more in the back-half of the year which is why we think it is still worth focusing on the name now,” Lenschow added.

Datadog has lowered its price target to $190.00 per Share, from $210.00.

By Senad Karaahmetovic