Zoom Video Communications (ZM) closed up 18.41% Friday after posting what was undoubtedly a blowout earnings report. Revenue (up 103%) and billings (up nearly 90%) both easily topped consensus analyst estimates, and free cash flow of $15 million topped expectations by about $11 million.
The company's remaining performance obligation (RPO - another term for backlog) rose 127% to $377 million, and both its July quarter and fiscal 2020 (ends in Jan. 2020) outlooks were above expectations, with the midpoint of Zoom's possibly conservative full-year revenue outlook implying 63% growth. Clearly, Zoom is seeing runaway momentum for its videoconferencing and collaboration software, as both large sales investments and the viral nature of Zoom's offerings drive stronger adoption at major enterprises.
DocuSign (DOCU) , on the other hand, is down over 10% -- it was down over 20% in after-hours trading yesterday before cooler heads prevailed -- after delivering a mixed April quarter report. Revenue and EPS beat expectations, but billings of $215 million (up 27%) slightly missed a consensus of $216 million. In addition, while DocuSign raised its full-year revenue guidance by $7 million, it reiterated billings guidance of $1.01 billion to $1.03 billion (consensus was at $1.22 billion), while stating on its earnings call that it's seeing longer sales cycles for enterprise deals in which it's up-selling existing buyers of its core e-signature software on value-added offerings.
Following a post-earnings surge that's likely aided by short-covering, Zoom is worth nearly $28 billion and trades for a whopping 34 times a fiscal 2021 billings consensus of $815 million. Even if that consensus proves conservative (as is quite possible) and Zoom does around $900 million in fiscal 2021 billings, its valuation looks pretty frothy (admittedly, I was making a similar point after Zoom began trading in the 60s following its IPO).
DocuSign, meanwhile, is now worth about $8.4 billion and trades for 8.2 times the midpoint of its fiscal 2020 billings guidance range. That's not exactly cheap, but neither is it a nosebleed valuation for a company that's still seeing strong top-line growth, remains the leader in a market that has only two major enterprise players (Adobe (ADBE) is the other) and still has a lot of long-term growth potential.
In some ways, Zoom and DocuSign's post-earnings moves are a sign of the times. Following nearly across-the-board run-ups for high-growth enterprise software names during the first few months of the year, Wall Street is still quite enthusiastic about those companies in the space that meet or exceed its high expectations. In addition to Zoom, firms such as Salesforce.com (CRM) , ServiceNow (NOW) , Anaplan (PLAN) and Coupa Software (COUP) have (in spite of their rich multiples) rallied over the last six weeks after delivering upbeat results and guidance.
On the flip side, markets have generally been remorseless to a slew of software firms that failed to meet at least some of its expectations. In addition to DocuSign, this list includes companies such as VMware, Pivotal Software (PVTL) , Zuora (ZUO) and Cloudera (CLDR) .
Throw in the fact that the number of software firms to post disappointing earnings reports has clearly grown relative to where it was in late 2018 or early 2019, and that many of the firms that delivered strong reports are now up over 50% this year, and the risk factor has gone up for chasing high-growth cloud/SaaS software plays trading at or near their highs.
By contrast, though a lot naturally depends on a company's particular story, some of the names in the space that markets have suddenly soured on are worth a look once the dust settles a little.