As one group of tech stocks after another get hit by concerns about slowing growth and/or trade tensions, enterprise software firms have been seen as immune to such risks -- and priced accordingly.
Recent October quarter earnings reports from major enterprise software firms did little to disrupt that narrative. While one can question the valuation premiums that some of these companies have been granted relative to tech peers, it's hard to dispute how well corporate software spending is holding up at a time when worries about issues such as tariffs, cyclical downturns, soft smartphone demand and social media usage pressures weigh on the shares of other tech names.
Virtualization software giant VMware (VMW) topped October quarter estimates on the back of 14% annual revenue growth and 17% license revenue growth, and issued January quarter sales guidance that was slightly above consensus (EPS guidance was in-line). More importantly, VMware forecast revenue would rise 12% in fiscal 2020 (ends in Jan. 2020), easily better than a consensus of 8%.
Salesforce.com (CRM) , the world's biggest CRM software firm, beat estimates while reporting 26% revenue growth, 28% billings growth and 34% backlog growth. January quarter EPS guidance was a little light due to Salesforce's aggressive spending, but revenue guidance was above consensus and implies 25% growth. The company also issued an initial fiscal 2020 (ends in Jan. 2020) revenue outlook that was above estimates and implies 20% to 21% growth.
Workday (WDAY) , a major provider of cloud human capital management (HCM) and financial management software, beat estimates while reporting 34% revenue growth and 48% billings growth (M&A helped, but so did strong organic growth). It also guided for January quarter revenue to rise 33% (above consensus), and set an initial forecast for subscription revenue to rise 26% to 30% in fiscal 2020 (ends in Jan. 2020).
Splunk (SPLK) , a top provider of software used to analyze and derive insights from the machine data thrown off by a company's hardware and software, soundly beat estimates while reporting 40% revenue growth and a 49% increase in software license and cloud subscription revenue. Splunk also delivered an above-consensus January quarter outlook and hiked its fiscal 2020 (ends in Jan. 2020) revenue guidance by $150 million (it now implies 24% growth).
Veeva Systems (VEEV) , a major provider of cloud CRM and content management apps for life sciences firms, beat estimates on the back of 27% revenue growth and 23% billings growth. January quarter guidance was above consensus, and Veeva expects billings will be up about 31% annually.
The reports follow solid September quarter numbers from peers such as Microsoft (MSFT) and SAP (SAP) . They also come at a time when enterprise software spending -- aided by cloud/SaaS app adoption and the large investments CIOs are choosing to make in fields such as security, analytics and CRM software -- continues growing faster than IT spending at-large. In October, research firm Gartner forecast global enterprise software spend will rise 9.9% in 2018 and 8.3% in 2019. That compares with expected growth rates of 4.5% and 3.2%, respectively for IT spending overall.
Unlike, say, chip stocks or Chinese Internet stocks, a lot of good news has definitely been priced into the shares of many enterprise software names. But on the flip side, most of the news involving the space still remains pretty good.