2Q20 Earnings Report: SEG SaaS Index Top 20 by EV/Revenue

The unprecedented nature of today’s COVID market continues to test SaaS companies. As a gauge, we tracked how public SaaS companies performed in 2Q20 and, more importantly, how they handled full year financial guidance. We analyzed the top twenty companies, as measured by EV/Revenue in the SEG SaaS Index. Digging into their recent earnings calls and financial reporting highlighted the various ways in which even large public companies are handling lack of visibility due to COVID and how the stock market reacted to their respective approaches.

What About Those That Provided Guidance?

Out of the twenty companies we looked at, fourteen reported fiscal year 2020 revenue guidance through the second quarter of 2020. Most of these companies operated within certain product categories that experienced tailwinds from COVID, such as: Communications and Collaboration, FinTech, Cloud Security, Data Storage, Tech-Enabled Services, and CRM. Twelve of the fourteen companies that provided fiscal year 2020 revenue guidance beat or met expectations for their second reported quarter in 2020, with some continuing record growth during the past quarter or fiscal year.

Digging Deeper:

Twelve of the fourteen companies that provided full year guidance in the second quarter of 2020 increased fiscal year 2020 revenue guidance expectations. The other two companies, Avalara and ServiceNow, lowered guidance, 0.8% and 1.3%, respectively.

On average, for those that reported full year guidance in both 1Q20 & 2Q20, fiscal year 2020 guidance increased by 2.5% from 1Q20 to 2Q20. The figure excludes Zoom, as its performance is considered a major outlier.

Due to sustained growth in the first half of the fiscal year and resounding demand for educational communication tools, the one company which overwhelmingly raised its fiscal year 2020 guidance was Zoom. In 4Q19, Zoom originally guided to $915M for a full year 2020, then upgraded its guidance to $1.8B during their first quarter earnings call, an increase of 97%. Zoom further increased fiscal year guidance in the second quarter earnings call to $2.39B, a 32.8% increase from first quarter estimates and a 161.2% increase from fourth quarter estimates. The stock price has increased 581% YTD (as of 9/22/20).

Of those providing guidance, excluding Zoom, CrowdStrike had the largest net dollar guidance change for fiscal year 2020, raising its expectations from $734M to $773M, a change of 5.3%. CrowdStrike exceeded guidance for the second quarter and raised its revenue and earnings guidance for the third quarter. In the first quarter earnings call, CrowdStrike guided to a revenue projection of $167.6 for the second quarter 2020 and ended up reporting revenue of $178.1M, beating guidance by 6.3%. CrowdStike CEO, George Kurtz, characterized the pandemic’s widespread health and economic impacts as promoting adversarial activity, thus escalating the need for cybersecurity software.

While five of the twenty companies pulled fiscal year guidance, the largest percentage change was Zoom, which raised its fiscal year 2020 guidance by 32.8% from first quarter to second quarter. In their first quarter earnings press release, Zoom guided to a revenue range of $495-$500M for the second quarter of 2020, which they surpassed with a reported revenue of $663.5M. Zoom continues to see momentum behind their product offering, and is guiding to $685-$690M for the third quarter of the year.

By Contrast…

One of the companies that pulled guidance but beat earnings is Shopify. Shopify saw incredible momentum throughout the first half of the 2020 due to the necessary transition to online operations for retail stores. Although Shopify continues to see heavy tailwinds in their U.S. operations, they did not feel confident about the economy for the rest of the year due to COVID and pulled guidance in the first quarter. In terms of second quarter earnings, Shopify’s revenue doubled in the second quarter to $714.3M, up 97% over the same period last year. The stock price initially held steady but continues to face turbulence over the course of the past few weeks. From the companies we looked at, a few kept a similar level of revenue guidance for fiscal year 2020 from 1Q20 to 2Q20, two of them being Zscaler & Slack. Zscaler’s fiscal year 2020 revenue guidance as of 1Q20 was $405-$413M, which was revised to $414-$417M in 2Q20. The 0.97% increase was due to COVID as the team at Zscaler believes the continued transition toward cloud-native network security and the demand for its product positions them to support the global shift for remote work. Slack reported a modest 0.7% increase in guidance, from $855-$870M in 1Q20 to $870-$876M in 2Q20 for fiscal year 2020. For Slack, COVID-related work from home (WFH) trends provide robust enterprise customer growth and geographies less impacted by COVID maintained similar close rates to pre-COVID levels. While Slack recognizes many early quarter headwinds subsided, the broader macroeconomic environment continues to create uncertainty for its clientele. Through an expanding product offering, Slack expects to reach similar percentage growth from Q2 to Q3 as observed in fiscal year 2020.

Stock Price Performance

On average, the stock price of the fourteen companies who reported fiscal year 2020 guidance decreased by 3.2% the day after 2Q20 earnings. Overall, for all twenty companies, the average decrease after earnings was 2.5%.

For the fourteen companies who provided guidance, their stock price, on average, decreased by 5.4% five days after their respective earnings call and decreased 0.7% after ten days. The five who pulled guidance saw, on average, a 3.4% decrease in their stock price five days after their earnings call with a 5.9% decrease after ten days. The one company acquired saw a 10.2% decrease in their stock price five days after their earnings call, but had an increase of 6.0% after ten days. The total stock price change for all twenty companies was a decrease of 5.4% five days after earnings call, and a slight decrease of 0.7% after ten days.

Where Do We Go From Here?

The outlook for the rest of the year is still uncertain, but recent guidance from top-performing public SaaS companies suggests continued growth. There is an air of optimism for many, as companies are adjusting to the new normal at a rapid pace, stocks are returning to pre-COVID levels, and M&A activity is beginning to pick up.

For additional insight, please visit SEG’s research page.