Connect with us


Cloud software is a ‘fight for a knife in the mud,’ and Wall Street is souring on the one sector that was winning

News Agencies



The cloud-software business has come to resemble a “fight for a knife in the mud,” as one popular TV character would put it, with vendors scrambling for the crumbs of declining business spending and hoping more will fall to the floor.

“It will only get bloodier and muddier for the next nine months,” Lopez Research analyst Maribel Lopez told MarketWatch in an interview after the line from media patriarch Logan Roy of HBO’s “Succession” came up.

A parade of earnings from big cloud-software names this week actually led to a slight rebound in their stocks overall, after huge declines in recent months. Those reports did not change the overall takeaway from cloud-software providers so far this year, however: Chief information officers, the execs in charge of digital infrastructure, are strapped for cash and delaying contracts because of macroeconomic uncertainties.

“After an epic run, cloud software is in for a rough ride while companies re-evaluate what’s truly adding value,” Lopez told MarketWatch. “Actually, it’s more like, while companies wait to see the impacts of a looming recession.”


In a Zscaler note Friday, MoffettNathanson analyst Sterling Auty said that’s making CIOs much more cautious in their vetting process before they commit to large, multiyear contracts.

“This is somewhat of a double-edged sword, as the increased deal sizes are coming at a time when, due to macro, customers and prospects have a magnifying glass to new IT purchases, which is elongating sales cycles,” Auty said.

Read: Earnings show cloud and security software are not immune to the economic downturn


The big concern among cloud-software vendors is securing a share of the small- to mid-sized business market, as many see Microsoft Corp.
taking more share from the smaller players. On the opposite end of the spectrum, younger companies are also trying to compete with Microsoft for larger companies, and the vendors are finding those deals are taking longer to close and hurting subscription growth.

It’s tough for cloud-software vendors to snag deals in a cost-conscious environment, according to several post-earnings calls. Over the past several years, native cloud companies — and legacy companies that have migrated to the cloud — have pitched their version of a “platform,” or what essentially is an ecosystem. By adding new services, or modules, to the platform, companies encourage customers to add more modules, or functionality, to their customized platform.

Security was an outlier, but it now faces the same issues

Businesses are being more cautious on spending, and among cloud services, CIOs rate cybersecurity a top priority, which shows in the stock performance. Year to date, the ETFMG Prime Cyber Security ETF 
has fallen 23.7%, and the First Trust Nasdaq Cybersecurity ETF
 is down 21.9%. Following a tough November that started badly, the iShares Expanded Tech-Software Sector ETF
has fallen 31.6% for the year, while the Global X Cloud Computing ETF
has dropped 35.9%, the First Trust Cloud Computing ETF
has fallen 39.3% and the WisdomTree Cloud Computing Fund
has dropped 49.6%. Meanwhile, the S&P 500 SPX
is down 14.6% and the Nasdaq Composite Index
is off 26.7%.


Cybersecurity company Zscaler Inc.’s
results Thursday showed how that sector could be facing more issues than expected, however. Guggenheim analyst John DiFucci summed up the week in a Zscaler note titled, “Nobody Beats the Macro.”

DiFucci had thought Zscaler was best positioned this week in the cloud-software space but admitted in the note, “We were wrong.”

“There certainly is a macro issue that has affected most in Software, and while Security businesses seemed somewhat insulated at first, they no longer do,” he wrote. “The question is, how long will this softening macro backdrop persist?”


The problem shows up most in billings — a more inclusive sales figure used extensively by software companies that combines revenue with deferred revenue for contracted services yet to be delivered.

For instance, Zscaler guided for billings of $1.93 billion to $1.94 billion for the year, while analysts had forecast $1.93 billion, a big sore spot for investors. On a yearly basis, Zscaler’s billings have always exceeded the Wall Street consensus going back to 2018, with the slimmest being a 2.6% beat in 2019, and last year’s being a 3.7% beat, according to FactSet data. This past week, Zscaler shares fell 7% and are down 59.9% for the year.

Also read: Zscaler stock drops 10% on conservative guidance, as it’s taking longer to close deals


Zscaler’s earnings report was similar to CrowdStrike Holdings Inc.’s
on Tuesday, when the cybersecurity company said subscription growth was slowing because of longer buying cycles from customers. Shares of CrowdStrike dropped 15% the next day, for their second-worst day ever. This past week they have dropped 11.5% and are off 39.4% for the year.

See also: CrowdStrike stock heads for worst day ever as slowing subscriptions prompt debate on business spending

Salesforce Inc.
shares suffered after the customer-relationship-management software giant provided a rare forecast that fell short of expectations Wednesday and revealed that co-Chief Executive Bret Taylor is leaving the company. This past week, Salesforce shares fell 4.7%, and they are down 43.1% for the year.


Now read: Salesforce co-CEO Bret Taylor leaving, stock falls after lower-than-expected forecast

Meanwhile, Snowflake Inc.’s
results were greeted with mixed reviews on Wall Street. This past week the share price gained 3.5%, while being off 55.8% for the year.

Read:Snowflake stock shrugs off guidance miss amid debate on whether growth inspires ‘confidence’ or concern


Even Palo Alto Networks Inc.
which kicked off cybersecurity earnings season with a bang, said it needs to get more active with customers to close deals sooner. This past week shares ended flat, and they are only down 7% for the year.

Read: Palo Alto Networks one of 2022’s best software stocks after another beat-and-raise quarter

Cloud-software outliers that hit it out of the park this past week

Shares of Workday Inc.
surged 17% Wednesday after the human-resources cloud-software company hiked its outlook and launched a share-buyback program. This past week, shares ended up 14.8% and are down 37.4% for the year.


Read: Workday stock rises 8.5% following raised outlook and share-buyback plan

Identity-security company Okta Inc.
surprised investors by forecasting a profit for the fourth quarter and maintaining profitability through the following year, and shares soared 25% the next day. Okta shares are up 29.9% for the week but are 71% down for the year.

Read: Okta CEO promises profit for all of next year — ‘The problem was never that we didn’t have talented sales people’


UiPath Inc.
shares rallied a tiny bit more out of their massive year-to-date drop — now down 66.3% — after the “software robot” provider’s quarterly results and outlook topped Wall Street estimates. This past week UiPath’s stock rose 17%.

Read: UiPath stock pops as results top Street view

For the week, the HACK rose 1.8%, the CIBR has advanced 0.7%, the IGV is up 2%, the CLOU has rallied 4.7%, the SKYY has risen by 2.7% and the WCLD has gained 4.1%, while the S&P 500 has advanced 1.1% and the Nasdaq has risen 2.1%.

Continue Reading


Breaking News

Editor Pick’s

Latest Entertainment

Entertainment4 hours ago

Stephen Dorff slams ‘garbage’ superhero movies, Marvel’s ‘Blade’ reboot: ‘We already did it and made it the best’

Stephen Dorff attends the premiere of his movie “Divinity” on Jan. 21 at the 2023 Sundance Film Festival in Park...

Entertainment4 hours ago

Yoshiki, glam-rocker responsible for ‘changing Japan’s culture,’ eyes U.S. stardom with supergroup the Last Rockstars: ‘It’s kind of cool to break some kind of boundary again’

When Japanese musician/composer/producer Yoshiki founded seminal glam-metal band X Japan back in 1982, pounding the drums in kabuki-esque facepaint, peroxide-blond...

Entertainment7 hours ago

Britney Spears asks fans to respect her privacy after police welfare check: ‘Things went a little too far’

Britney Spears says things went “too far” after fans called police to her home. (Photo: FilmMagic) Britney Spears broke her...

Entertainment7 hours ago

Camila Mendes details struggles with eating disorder: ‘I was really afraid of eating carbs’

Camila Mendes opens up about recovering from an eating disorder. (Photo: Frazer Harrison/Getty Images) Camila Mendes is opening up about...

Entertainment8 hours ago

Amy Robach and T.J. Holmes mediating with ABC amid suspension: ‘It’s all a huge mess,’ says source

T.J. Holmes and Amy Robach’s fate at GMA3 unclear as the two begin a mediation with ABC. (Photo: Getty Images)...

Entertainment12 hours ago

‘Shazam 2’ Trailer Highlights the Villainous Daughters of Atlas

A new Shazam! Fury of the Gods trailer has been released, giving fans a closer look at the upcoming DC...

Entertainment12 hours ago

Salma Hayek’s see-through dress leaves Channing Tatum speechless: ‘I have no comment’

Salma Hayek stuns in a see-through dress at the premiere for Magic Mike’s Last Dance. (Photo: Getty Images) Salma Hayek...

Entertainment12 hours ago

Succession season 4 teaser promises more warring, more Wambsgans, and a wedding

Succession will return for its fourth season March 24, HBO announced today. And we also got us our first, predictably...


Latest Sports

Sports59 mins ago

Greg Olsen braces to be bounced from top Fox booth by Tom Brady

Former NFL tight end Greg Olsen knew when he ascended to the No. 1 booth at Fox this year that...

Sports1 hour ago

Arizona Cardinals head coach search: Five candidates remain after two make decisions

The Arizona Cardinals are busy lining up interviews with head coach candidates.

Sports2 hours ago

3 fights break out 16 seconds apart in Flyers vs. Wild game

It was Fight Night in St. Paul on Thursday as the Wild took on the Flyers in a heated matchup.

Sports2 hours ago

NBA All-Star starters 2023: Joel Embiid not selected in Eastern Conference frontcourt

Joel Embiid, the Eastern Conference's leading scorer with 33.4 points per game, was not selected as an All-Star starter. By...

Sports2 hours ago

Gio Reyna scores second straight winner in second game since USMNT World Cup saga

Reyna did it again Wednesday, just three days after marking his return from the World Cup with a winner.

Sports3 hours ago

Rui Hachimura’s well-rounded skills on display in Lakers debut

Forward Rui Hachimura made a number of shots from the post, mid-range and long distance in the Lakers' victory over...

Sports3 hours ago

Refs miss key call on go-ahead Klay Thompson shot vs. Grizzlies, NBA confirms

The NBA's Last Two Minute Report confirmed the refs missed a call on Klay Thompson's go-ahead 3-pointer in the Warriors'...

Sports4 hours ago

Blame game fail: Dak, Bills coaches are just fine

Of course there will be overreactions to playoff losses, but cooler heads should prevail when it comes to Dak Prescott...

Technology Hot News

Technology1 week ago

Led by "Amazon" and "Microsoft" .. the technology giants are planning to lay off 64,000 employees

After 10 years of driving the stock market bull run, big tech companies are racing to downsize staff to adapt...

Technology1 week ago

Apple introduces MacBooks with new M2 processors

Yesterday, Tuesday, Apple unveiled MacBooks powered by the new, faster “M2 Pro” and “M2 Max” processor chips, in a surprise...

Technology1 week ago

All you need to know about the upcoming Galaxy S23 phones from Samsung

Samsung has officially announced that the (Galaxy Unpacked 2023) event will be held this year on Wednesday, February 1, which...

Technology1 week ago

FTX Exchange Announces Hacking and Stolen $415 Million in Cryptocurrency

Bankrupt American cryptocurrency firm FTX announced today, Wednesday, that $415 million in cryptocurrency has been hacked and stolen from the...

Technology1 week ago

Because of a "fraudulent tweet"… Elon Musk's trial begins

Elon Musk's trial began Tuesday in San Francisco with the selection of jury members who will have to decide whether...

Technology1 week ago

An electric spoon replaces salt and spices, but with conditions

Experts have developed an electric spoon that is able to replace spices and flavors and affect the taste buds in...

Technology2 weeks ago

The biggest dangers of using tracking devices.. so you can escape?

If you spot an unknown Bluetooth tagging device, there are ways to disable the device so it can't track your...

Technology2 weeks ago

New Twitter.. For You tab to web version

The Twitter platform announced that it will bring the new tab (For You), which launched last Tuesday for iPhones and...