Two weeks into earnings season, all signs still point to the enterprise software market following up on a strong 2019 with a pretty good (and perhaps equally good) 2020.
Atlassian (TEAM) certainly did nothing last week to sour the mood of software investors: Its shares have risen 12% to new highs since it trounced December quarter estimates on the back of 37% revenue growth and 38% billings growth on Thursday. Both numbers represent a slight acceleration relative to the September quarter.
Atlassian, which continues seeing penetration rates rise for its collaboration tools for IT pros and other office workers, did admit that its December quarter benefited from the pulling forward of some deals ahead of price hikes. Nonetheless, its fiscal 2020 (ends in June 2020) revenue guidance was still raised by $28 million at the midpoint to $1.595 billion, and its shareholder letter once more struck an upbeat tone about customer/user growth for a slew of products.
IBM (IBM) and SAP's (SAP) Q4 software numbers were a little more mixed, but still suggested the software spending environment remains healthy.
IBM, whose software operations have been underperforming the broader market for a long time, did report a modest amount of growth for its large transaction processing software business, after reporting a small Q3 decline. And perhaps more importantly, Big Blue disclosed that recently-acquired Red Hat saw its growth accelerate to 24% from a Q3 level of 19%.
SAP, which soared post-earnings in October, is down about 3% post-earnings on Tuesday after beating EPS estimates but slightly missing on revenue. However, the German software giant still reported 8% euro-based revenue growth, with a 35% increase in cloud revenue (boosted some by the January 2019 Qualtrics acquisition, but also benefiting from organic growth) offsetting a 4% drop in traditional software license revenue. And it guided for its 2020 revenue to be up 6% to 8% in constant currency, with cloud revenue growing 24% to 28%.
Also, SAP suggested on its earnings call that macro pressures aren't a particularly large headwind right now (on recent calls, the company has mentioned seeing some weakness in Asia and in verticals such as automotive and manufacturing). And in what was arguably a shot at archrival Oracle (ORCL) , SAP asserted that its bread-and-butter ERP software business now has roughly twice the market share of its nearest rival.
PC/app virtualization software vendor Citrix Systems (CTXS) , a company that has had its ups and downs amid stiff competition from VMware (VMW) and cloud-based virtual desktop and app solutions, also had a relatively encouraging report. Citrix jumped to new highs last week after slightly beating Q4 estimates, reporting 4% billings growth (a reversal from Q2 and Q3's billings declines) and issuing generally in-line Q1 and full-year guidance.
Atlassian, IBM, SAP and Citrix's reports come shortly after research firm Gartner forecast enterprise software spending would rise 10.5% in both 2020 and 2021, comfortably eclipsing total IT spending growth of 3.4% and 3.7%. Though a number of IT hardware vendors might be claiming that macro issues are a significant issue for them, most software firms are -- as Microsoft (MSFT) and ServiceNow (NOW) get set to report on Wednesday -- singing a very different tune.
In some ways, the story for enterprise software firms thus far in earnings season has a lot in common with the story for chip companies. While the multiple expansion seen over the last 12 months by so many of the better-positioned names in the space makes it hard to get very bullish on a lot of them in the absence of a pullback, one has to admit that the companies are still generally sharing good business news.
And though more expensive on average than chip companies, enterprise software firms do have one thing going for them right now that chip companies don't: As fears about the coronavirus outbreak continue running high, most fast-growing software firms have little or no Chinese exposure. That could lead them to be treated as a safe haven in much the same way that they were when trade tensions spiked.
