An evaluation of select public SaaS company earnings reports shows how large public companies are fairing in the current market.
The unprecedented nature of today’s COVID market is testing the confidence level of SaaS company fiscal year guidance. As a barometer, we tracked how public SaaS companies performed in 1Q20 and how they handled full year financial guidance. We analyzed the top twenty companies, as measured by market capitalization, in the SEG SaaS Index. Digging into recent earnings calls highlights the various ways in which even large public companies handle a lack of visibility due to COVID. Further, we see how the stock market reacts to their respective approaches.
What About Those That Provided Guidance?
Out of the twenty companies we looked at, eleven provided guidance for fiscal year 2020. Most of these companies operated within certain product categories that experienced tailwinds from COVID, such as: Communication and Collaboration, FinTech, Asset Management, Tech-Enabled Services, and CRM. One interesting commonality among these eleven companies was they all beat or made revenue guidance for their first reported quarter in 2020. Some even had record growth during the past quarter or fiscal year.
Ten out of the eleven companies who provided guidance in the first quarter of 2020 lowered their fiscal year 2020 revenue guidance expectations. Due to an exponential increase in demand for its product, the one company that raised its fiscal year 2020 guidance was Zoom. Zoom originally guided to $915M for the full year 2020. The company upgraded their guidance to $1.8B during their earnings call in the 1Q20, an increase of 97%. Its stock price increased 266% YTD (of 06/22/20). On average, for companies that reported guidance in both 4Q19 and 1Q20, fiscal year 2020 guidance was lowered by 2%. This excludes Zoom, as its performance is considered to be a major outlier.
Salesforce had the largest net dollar guidance change for fiscal year 2020. The company lowered its expectations from $21B to $20B, a change of 5%. Salesforce met guidance for the first quarter but lowered its revenue and earnings guidance for the second quarter. For fiscal year 2020, Salesforce guided to a revenue projection of $4.88B for the first quarter of 2021. The company ended up reporting revenue of $4.87B, matching pre-COVID guidance.
The largest percentage change was Autodesk, which lowered its fiscal year 2020 guidance by 8% from $4.6B to $4.22B. In its fiscal year end press release, Autodesk guided to a revenue range of $880-895M for 1Q20. This was made with a reported revenue of $886M. Autodesk continues to see momentum behind its product offering and is guiding to $890-905M for 2Q20.
One of the companies that pulled guidance but beat earnings is Shopify. Shopify saw incredible momentum during the latter half of the quarter due to the necessary transition to online operations for retail stores. Although Shopify saw great demand for its product, the company did not feel confident about the economy for the rest of the year due to COVID and withdrew guidance. In terms of revenue for the first quarter, Shopify guided to $440-$446M and beat expectations by reporting $470M. The stock price initially took a hit once guidance was withdrawn but has normalized over the course of the past few weeks.
Of these companies, a few kept a similar level of revenue guidance for fiscal year 2020 from 4Q19 to 1Q20. Two of the companies include Dropbox & Atlassian. Dropbox’s fiscal year 2020 revenue guidance as of 4Q19 was $1.89-$1.9B and was revised to $1.88-$1.9B in 1Q20. The 1% drop was due to COVID as the Dropbox team believes the demand for its product positions the company to support the global shift for remote work.
Atlassian, whose fiscal year ends in July, also reported a 1% drop in guidance, from $1.59-$1.6B in 2Q20 to $1.58-$1.59B in 3Q20 for fiscal year 2020. For Atlassian, COVID did not impact its total fiscal year revenue by a significant amount, as a little more than half of the fiscal year operated prior to COVID. Atlassian suspects that its company and product offering are not as exposed to potential impacts of the virus as many other verticals and industries.
Stock Price Performance:
On average, the stock price of these eleven companies decreased by 1% the day after 1Q20 earnings. Overall, for all twenty companies, the average decrease after earnings was 0.2%. This indicates that although some companies pulled guidance, investors still had confidence in their 2020 fiscal year outlook.
For these eleven companies, the stock price, on average, increased by 0.8% five days after respective earnings calls, and increased 4.3% after ten days. The nine companies that pulled guidance saw, on average, a 1.3% decrease in their stock price five days after their earnings call, but overall had an increase of 0.1% after ten days. The total stock price change for all twenty companies was a decrease of 0.2% five days after earnings calls. After ten days, the total stock price increased 2.4%.
Where Do We Go From Here?
The outlook for the rest of the year is still uncertain. However, recent guidance from top-performing public SaaS companies suggests continued growth. There is an air of optimism for many, as companies adjust to the new normal at a rapid pace, stocks return to pre-COVID levels, and M&A activity picks up.
For additional insight, please visit SEG’s research page.