Why Okta, Twilio and Salesforce are bucking the downward trend in cloud software stocks

Cloud software stocks continued to sell off on Monday, after one of the worst weeks in space history, but not as fast as Friday’s selloff as a few battered stocks received upgrades and boosts. giants like Salesforce Inc. rebounded from their worst day in years.

Last week was the worst week ever for the Global X Cloud Computing ETF CLOU,
the third worst week on record for the First Trust Cloud Computing ETF SKYY,
and the WisdomTree Cloud Computing WCLD fund,
managed to avoid its worst week ever by 2 basis points, according to FactSet data.

While the two TEAMS of Atlassian Inc.,
and Twilio Inc. TWLO,
shares ran lower on Friday, shares of Twilio rebounded 6% on Monday while those of Atlassian fell 4%. Atlassian shares had their worst week last week after executives said customers were converting to paid subscriptions from freemium versions at a slower pace, while Twilio suffered a two-notch downgrade from from B. of A. Securities analyst Michael Funk before the company predicted a poor outlook.

Starting late Friday: Do you think you had a bad week? Salesforce and cloud companies have had some of their worst weeks

Those declines also trickled down to the biggest names in cloud software on Friday, though most have yet to report profits this season. Last week, Salesforce Inc. CRM,
stocks recorded their worst week since 2011 with a 15% drop, and Service Now Inc. NOW,
shares fell 14.6% for the week. While Salesforce shares rose 2% on Monday, Service Now shares fell 0.3%

On Monday, positives were seen in shares of Workday Inc. WDAY,
shares, which had their worst week last week and Okta Inc. OKTA,
equities, which experienced their second worst on record.

Guggenheim analyst John DiFucci updated both Okta and Workday stocks in a note on Monday. DiFucci upgraded Okta to neutral buy and Workday to hold sell.

At the end of August, Okta’s sales rep churn was higher than usual due to “short-term challenges” with the company’s assimilation of reps from the acquisition of Auth0 last year.

“While we recognize that the company faces challenges that could take several quarters to effectively resolve, we find current valuation levels too compelling to ignore,” DiFucci said.

“If the company even stumbles on something positive, we would expect the stock to start repricing towards a more reasonable multiple,” said DiFucci, who expects execution issues to be taken down. into account in the action.

For Workday, DiFucci said the price just fell below his targets, and while he still believes in Workday’s targets of 20% or more CAGR and $10 billion in revenue by 2026 .

Jefferies analyst Brent Thill said the software is “still” bottoming out.

“Given the massive sale of software, nowhere is safe, not even security, which was once a safe haven,” Thill said, adding that the winter will be cold with a harsh macro environment.

Additionally, many software companies have “seat-based” models, which will be phased out along with jobs as tech layoffs unfold like Elon Musk-owned Twitter.

And “the Fed’s comment or Friday’s jobs report didn’t help either,” said Evercore ISI analyst Kirk Materne, who called it a “brutal week for everyone.” software”.

“Earlier this week, we published a note discussing the growing importance of providing a healthier balance between revenue growth and operating margin in terms of how investors now value companies,” said Materne, noting that the momentum favors large companies.

Management teams that are “committed to expanding margins” include large-cap Salesforce and Workday, and Splunk Inc. SPLK,
and Qualtrics International Inc. XM,
in small and mid caps, the analyst said. Materne has outperforming ratings on all four stocks.

Meanwhile, shares of Snowflake Inc. SNOW and MongoDB Inc. MDB continued with last week’s losses and the hares of cybersecurity firm Cloudflare Inc. NET,
fell with shares of Zscaler Inc. ZS,
and CrowdStrike Holdings Inc. CRWD,

Fortinet inc. FTNT
which accelerated last week’s declines kicked off that decline on Thursday, after forecasting fourth-quarter billings late Wednesday that came in below analysts’ expectations.

Lily: Security software stocks suffer from this grim forecast

Cybersecurity stocks had their worst week in 2.5 years, with the ETFMG Prime Cyber ​​Security ETF HACK,
down 9.6%, its worst since falling 9.9% the week ended March 13, 2020. The First Trust Nasdaq Cybersecurity ETF CIBR,
was down 9.8%, its worst week since the start of 2020.

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