Macroeconomic themes remain top of mind for investors heading into this earnings season. Based on our conversations, here are the main topics:
European exposure is top of mind. Consistent with what we have written about recently, investors continue to mull over the potential impact from exposure to Europe following comments from ADBE and PATH on their recent investor calls. From this perspective, we believe COUP has weak positioning given that it has large international exposure, has long sales cycles, and is not necessarily mission- critical in our view. Some investors brought up HUBS, though we see HUBS as increasingly mission- critical due to strong multi-hub adoption trends and evolution from product to platform, as well as continued movement upmarket. Other names called out in our previous report but not discussed much in this context were MDB and VEEV (since both are viewed as mission-critical).
- Investors are also evaluating companies’ general sensitivity to a potential recession. This point is somewhat tangential to European exposure, as several investors are exploring how a potential recession would impact software companies. This is where mission-criticality becomes especially relevant, as we believe discretionary line items (e.g., COUP) would be the first to get cut and pushed into the background.
- M&A remains a hot topic, especially following SAIL and MSP acquisitions announced on Tuesday. There continues to be healthy discussion around which company will be the next takeout. Investors see numerous combinations that could make sense, with COUP, DOCU, and SMAR being the most discussed names in our coverage group.
- MSFT, NOW, and TEAM to set the stage for 1Q22 earnings season. Stepping back, we believe investors are looking forward to the first round of earnings reports from MSFT, NOW, and TEAM to gain color on top-of-mind macroeconomic concerns. We expect these “bellwether” software earnings events to likely set the tone for the rest of this software earnings season.
