SaaS Software Cloud Update – July 2018

Navidar | August 8, 2018

 

Public Markets and M&A Activity

The Navidar SaaS Software Cloud Index declined marginally by -1.5% in July and advanced 17.9% so far in 2018, compared with the NASDAQ’s +2.2% and +11.1%, the Russell 2000’s +1.4% and +8.9%, and the S&P 500’s +3.6% and +5.3%, respectively. Following is a summary of the company-specific issues related to selected stocks in our coverage universe that meaningfully out- or under-performed as well as relevant M&A activity.

Alphabet (NASDAQ: GOOGL +8.7%)the technology giant reported strong 2Q18 results, beating analyst expectations. GOOGL revenues increased by 25.6% Y-o-Y to $32.7B in 2Q18, surpassing the consensus estimate of $32.2B. Without accounting for European Union’s fine of $5B, the Company reported net income of $8.3B for the quarter, compared to $3.5B reported a year ago, exceeding analyst expectations of $6.7B. The Company attributed strong results on three major domains: machine learning and artificial intelligence becoming a crucial component across all its products; investments in computing, video, cloud and advertising platforms; and investments in new businesses and emerging markets.

Facebook (NASDAQ: FB –11.2%)the social network giant reported mixed results in 2Q18, with revenues of $13.2B missing consensus estimate of $13.4B. Although, revenues increased by ~42% Y-o-Y, but were lower than analyst estimates and previous growth rates. FB reported its slowest user growth during the quarter, with 22M active users added in 2Q18, compared to 49M added in 1Q18, representing sequential growth of 1.7%. The Company reported net income of $5.1B, or $1.74 per share, an increase from $3.9B or $1.32 per share in the year-ago period. The bottom-line beat was above analysts’ average estimate of $1.71 per share. FB provided weak guidance with CFO David Wehner highlighting that the Company expects revenue-growth rates to decline by high-single-digit percentages from prior quarters sequentially in both 3Q18 and 4Q18. The Company also indicated that its operating margin would fall from 44.0% in 2Q18 to the mid-30.0% range, going forward.

Twitter (NYSE: TWTR –27.0%) the social media platform provider’s stock declined over lower-than-expected 2Q18 monthly active user (MAU) numbers and weak guidance. Revenues for 2Q18 increased 24% to $711M, topping the analyst average estimate of $697M. Adjusted earnings were $0.17 per share, compared to analyst estimate of $0.16 per share. TWTR monthly users dropped by 1M sequentially to 335M in 2Q18, with predictions of further decline in monthly users as the company continues to fight against spam, fake accounts and malicious rhetoric on its network. The Company issued weak guidance for 3Q18, with adjusted EBITDA ranging between $215-235M. The full year projections declined compared to last quarter’s estimates. TWTR also increased its capital expenditures rates for the year to $450-500M.

Atlassian (NASDAQ: TEAM +15.8%)the team collaboration and productivity software provider announced selling of its corporate chat software products, HipChat and Stride, to Slack Technologies (ST). TEAM will make an equity investment in ST, which will pay an undisclosed amount over the next 3 years for the acquisition. The deal allows TEAM to exit a business that failed to generate as much demand as expected. The Company believes the impact of lost revenue will be largely offset by ST’s payments over the next 3 years. TEAM reported strong 4Q18 earnings, with revenues increasing by 40% Y-o-Y to $244M, surpassing analyst estimate of $233M. Loss per share came at $0.11 per share, compared to analyst estimate of loss of $0.12 per share.

DropBox (NASDAQ: DBX –17.4%)the cloud storage provider’s stock declined ahead of reporting its 2Q18 earnings on August 9. DBX announced increasing of its storage plans to up to 3TB. The Company will offer a 2TB plan to individual users for the first time, DBX Professional moves from 1TB to 2TB, with the same pricing of $16.58/month. DBX Plus stays at 1TB for $8.25/month. DBX Business Standard for teams jumps from 2TB to 3TB for the same $12.50/month pricing, whereas the unlimited Business Advanced costs $20 per user per month.

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