Software Equity Group analyzed earnings reports of the top 20 companies by EV/Revenue in the SEG SaaS Index. Our goal was to compare the actual reported FY 3Q revenue data against the guidance provided in the second quarter. Further, we wanted to see how the stock price of each company would change the day after earnings, five days after, and then ten days after.
How Did These Companies Handle Revenue Guidance?
Out of the twenty companies that we evaluated, six met or exceeded analysts’ third quarter revenue projections. Most of these companies operate within certain product categories that continue to experience COVID-related tailwinds, such as: BI & Analytics, Communications and Collaboration, Cloud Security, Dev Ops & IT Management, and eCommerce.
Digging Deeper Into Revenue Guidance:
While six of the twenty companies met or exceeded analysts’ revenue guidance, the SEG SaaS Index, on average, missed analysts’ revenue guidance by 5%. The fourteen companies that did not meet or exceed analysts’ third quarter revenue guidance include those that experienced early COVID-related adoption in the first two quarters, such as Zoom, DocuSign, and CrowdStrike.
Paycom, a particularly lockdown-sensitive company, originally guided to $212M in third quarter revenue, but missed this projection by 7%. The unemployment headwinds across their pre-pandemic clientele stymied growth, but the company believes strong new business sales and investments in R&D will boost their income statement. Of those providing guidance, Paycom has the largest revenue percentage increase from third to fourth quarter, projecting fourth quarter revenue to grow nearly 38%. The stock price has increased 55.7% YTD (as of 12/16/20).
On overage, for those that provided fourth quarter guidance, the companies increased 4Q20 revenue guidance 14.5% from 3Q20 revenue. The two companies that did not increase guidance were Slack, which was acquired by Salesforce, and The Trade Desk, which decreased projections 3%.
Stock Price Performance:
Collectively, the select SEG SaaS Index stock price increased by 3.2%, on average, the day after 3Q20 earnings. Five days after 3Q20 earnings reports, the average company stock rose by 2.7% compared to pre-release. The biggest movers, Appian (+25.5%), Zscaler (+20.4%), and Crowdstrike (+17.2%), led this upward movement five days after their respective earnings releases. Ten days post-earnings release, the average stock rose 7.5%. The soon-to-be acquired company, Slack, rebounded to gain 1% in stock price after an initial 5.7% decrease. The largest post-earnings release stock growth was Appian, which saw 58.2% in market cap expansion in the 10 days following third quarter earnings.
Where Do We Go From Here?
The tracked 20 companies in the SEG SaaS Index achieved an average $265.0M in 3Q20 revenue, and missed analysts’ revenue guidance by 4.9% for the third quarter. Eighteen of the nineteen companies expect to beat or meet previously provided expectations for their fourth quarter in 2020, with some continuing record growth.