In many ways, the tech earnings reports delivered over the last week had much in common with the ones delivered in the immediately preceding weeks, with quite a lot of firms reporting healthy Q2 growth and/or indicating that demand has improved a lot relative to March/April lows.
But there were some cautious remarks to be found from a smattering of companies that had seen business hold up fairly well during the first half of the year.
Datadog (DDOG) , Alteryx (AYX) and BlackLine (BL) -- three growth-stage software firms that were up big this year going into their Thursday Q2 report -- are good cases in point. The companies each saw double-digit Friday declines (and contributed to broader selling pressure in software stocks) after they beat Q2 estimates but shared disappointing full-year guidance. Datadog's guidance was above consensus, but by less than hoped, while Alteryx and BlackLine's guidance was below consensus.
On their earnings calls, each company mentioned that COVID-19-related macro headwinds continue impacting their deal activity. Datadog and Alteryx each noted that many existing clients are holding off on expanding deployments of their software as they try to conserve cash, with Alteryx also reporting elevated churn among smaller customers. BlackLine reported that international deals were lagging relative to North American delays, that companies in "impacted" industries are still delaying projects and that many deals require additional qualifications to clear.
Cloud capital spending is another field where -- following very strong first-half demand, thanks in part to investments made to support lockdown-driven activity spikes -- some cautious comments were shared about near-term demand.
Western Digital (WDC) , which plunged in response to its weak Q3 guidance, said that cloud giants (major buyers of the company's SSDs and high-capacity hard drives) are "going into a digestion phase" when it comes to hardware purchases. The company also reported (like others) seeing weak demand in traditional, on-premise, enterprise environments, and from the video surveillance end-market.
A day earlier, Microchip Technology (MCHP) said that it thinks sales to data center and computing end-markets could soften during the second half of the year, thanks to a diminished benefit from work-from-home trends.
Finally, Roku (ROKU) , which fell about 7% post-earnings on Thursday, said that it doesn't expect TV ad spend to fully recover until "well into 2021." The comments came not long after Alphabet (GOOG) observed that YouTube's brand ad sales are still under pressure, albeit somewhat improved relative to March/April levels.
None of these disclosures are necessarily reasons to panic, particularly given that some of the companies responsible for them still look poised to see strong second-half growth.
Datadog, for example, guided for roughly 50% annual Q3 sales growth. And while Roku declined to provide formal guidance, the company did comfortably beat Q2 estimates and forecast its second-half revenue will grow "substantially," as it continues seeing strong active account growth and keeps building out its streaming ad business.
Also, some of the aforementioned headwinds won't hit all companies impacted by them the same way. For example, Nvidia (NVDA) and AMD (AMD) might still be able to keep growing their sales to cloud giants in the coming months thanks to company-specific factors -- in Nvidia's case, the ramp of its new A100 server GPU, and in AMD's case, ongoing share gains for its second-gen Epyc server CPUs (Rome) plus the late-2020 arrival of its third-gen Epyc CPU line (Milan).
But as Datadog and Roku's post-earnings drops show, the margin of error is now pretty low for many of the tech companies that have rallied strongly over the last several months and now sport elevated multiples. A good-but-imperfect earnings report, rather than a truly disastrous one, can be enough to spark a selloff.
