Confluent co-founder and CEO Jay Kreps appears at the company’s sales grand opening in Las Vegas on February 8, 2022.
Affluence
Investors looking to get into cloud stocks that have fallen at bargain prices may have missed their chance.
Sweeping the cloud software market, which boomed at the start of the year, many stocks are up 50% from their lows. The WisdomTree . Cloud Computing Foundation, an industry-wide basket of commodities, has gained 26% over the past three months, while the S&P 500 has gained less than 9% over that period. The cloud index is still underperforming the broader market for the year.
Macro data remains unfavorable for cloud companies, which have risen during the pandemic when interest rates are low and investors are paying large premiums for growth. Now, with the Fed in the middle of a bull cycle and inflation near a 40-year high, profits are at a premium as are dividends and products that consumers need in good times as well as bad.
However, even as cloud stocks sell off at a dizzying pace in the first half of 2022, the majority of the companies behind that share price continue to fall, demonstrating that demand remains strong for the stock. their products and services.
Perhaps the market has overcorrected, companies are doing well and these stocks will outperform again when confidence returns to the market. That’s a bet some investors have made over the past few months, as they try to capture what they consider easy money.
“Some of these things will come back in a bit,” says Elliott Robinson, a partner at Bessemer Venture Partners and co-founder of the firm’s investment-growth operations. “We haven’t seen the fundamentals of that business basket really fall off the cliff.”
For example, consider GitLab, their tool helps software developers manage source code. The company’s stock price fell 75% between November and April. In June, the story changed.
People celebrate Gitlab’s IPO at Nasdaq, October 14, 2021.
Source: Nasdaq
Despite the lack of analyst predictions, GitLab posted 75% revenue growth from the previous year. Goldman Sachs Upgrade shares to buy from the equivalent of holding.
Goldman Sachs analysts wrote in a report at the time: “In the short-term, GTLB will likely see more steady demand (compared to complex and discretionary IT solutions) as it provides key cost savings and operational efficiency,” Goldman Sachs analysts wrote in a report at the time.
Shares of GitLab have doubled in the past three months, the biggest gain among shares in the WisdomTree fund. Data processing software developer Affluence saw the second-biggest increase, up 81% since mid-May. On August 3, Confluent reported a 58% increase in revenue for the second quarter and forecast at least 46% growth for the year.
Confluent’s technology “is in the system that powers the applications that directly serve business-critical operations and real-time customer experiences,” CEO Jay Kreps told analysts. on the company earnings call. “With this criticality, it cannot be turned off without completely disrupting the operation of the business.”
Major cloud growth companies in the last three months
CNBC
As Confluent reports, Atlassian record 36% growthtopped estimates and boosted the collaborative software company’s stock, which is now up 67% in three months.
The good news continues this week. On Thursday, restaurant software maker Grill exceeded estimates for the quarter, with revenue up 58%, and the company lifted guidance for 2022. That push the stock up more than 8% on Friday and 55% since May 12.
The cloud sector is getting an extra boost from economic data that looks less threatening than it did a month ago. On Wednesday, the US Bureau of Labor Statistics speak The prices consumers pay for goods and services rose more slowly in July than in June. Stocks rose on optimism that the Fed could slow the pace of rate hikes.
But the upward cloud is not universal. In particular, companies with deep consumer exposure also did not increase.
Shopify has increased by less than 30% in the last three months and remains high around 77%. The company’s software is used by online retailers to help manage payments, inventory, and logistics. At the end of July, Shopify missed estimate and warned that inflation and interest rates will weigh on business activity in the second half of the year.
“We now predict that 2022 will end differently, more than a transition year in which e-commerce has largely reset to the pre-Covid trendline and is now pressured by high inflation. continuously,” the company said in a statement its financial performance.
Jamin Ball, an investor at Altimeter Capital, wrote in weekly cloud newsletter on Friday that aggressive buyers in software stock may be ahead of the reality. He thinks the US will enter a recession and inflation will continue to be high and interest rates will rise.
“Based on the data we have today, I think the market is over-optimistic,” Ball wrote. “I don’t think we’re in a recession, but I think one will come, maybe in 2023.”
CLOCK: Cloud business
