'Investor Anxiety' On Software Stocks Prevails, But This Analyst Sees Hope In A Few Stocks, With Questions Around Others -- Like Palantir

On average, software companies beat Q2 revenue estimates by 2% and profitability expectations by 5%, RBC analyst Matthew Hedberg said. 

Q3 was guided lower for both revenue and profitability while stocks moved on average 2.1% higher the day following earnings. 

While his attention shifted quickly to off-quarter software, he came out of the on-quarter cycle feeling okay about the durability of software and, to a greater extent, the ability to protect margins. 

Thematically, he saw better-than-expected results from Ad-tech and Design-based software, somewhat expected solid results from Security, while Application software was weaker. 

He came out of on-quarter earnings feeling better about trends from Dynatrace, Inc DTHubSpot, Inc HUBSInformatica Inc INFA, Microsoft Corp MSFTServiceNow, Inc NOWPTC Inc PTCPowerSchool Holdings, Inc PWSCXometry, Inc XMTR and ZoomInfo Technologies Inc ZI and have incremental questions about Fastly, Inc FSLYOlo Inc OLOPalantir Technologies Inc PLTR and Twilio Inc TWLO

MSFT results/guidance was better than expected, specifically on enterprise and Azure, but it did raise a cautionary note on SMB trends, he said. Hyper-scale results were better than expected. 

NOW's Q2 cRPO guide was light of expectations but could set up a better scenario vs. what seemed like a high bar coming out of Q1, he said. 

There were mixed messages on firewalls as Check Point Software Technologies Ltd CHKP had inline results/guidance while Fortinet, Inc FTNT noted mixed results

He noted mixed mid-cap security results as Varonis Systems, Inc VRNS and Qualys, Inc QLYS reported beat-and-maintain quarters, while Rapid7, Inc RPD noted mixed guidance due to a slowdown in VM spend. 

Within observability, DT cut estimates while Datadog, Inc DDOG talked about a slowdown in consumption as he also saw a downturn in consumption from FSLY and TWLO. 

Front-office spending seems more resilient than expected, highlighted by HUBS and ZI, he noted. 

Design-based names Altair Engineering Inc ALTRANSYS, Inc ANSSBentley Systems, Inc BSY, and PTC displayed resiliency with no macro pressure.

Cloudflare, Inc NET, HUBS, DDOG, and SolarWinds Corp SWI noted good small-biz trends, which was different from MSFT and N-able, Inc NABL

M&A continues with Ping Identity Holding Corp PING going private; within his coverage, he thinks M&A will remain a relevant topic.

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