Software Stack Investing

Following a disappointing Q1 earnings report highlighted by challenges in the go-to-market effort, Cloudflare demonstrated renewed momentum in Q2. The sales reorganization is progressing well. Large enterprises expanded spend, adding to multi-product subscriptions across several categories. In parallel, profitability measures continue to improve with growing operating margin and cash flow.

After delivering favorable results in Q1, Confluent continued on largely the same trajectory in Q2. Sequential growth rates even imply stabilization around 30% annually, after almost 2 years of deceleration from Covid highs. This growth is being led by rapid adoption of Confluent Cloud, with the licensed Confluent Platform offering for on-premise deployments demonstrating surprising resiliency as well. This is an audio summary of the original blog post. For more details go to softwarestackinvesting.com.Venturing into Fashion TechExploring the convergence of fashion tech, entrepreneurship, and fashion business. Listen on: Apple Podcasts Spotify AI & Aliens Unveiled • The WordThe Word pulls the veil on AI and AliensListen on: Apple Podcasts Spotify

Headwinds from workload optimization may have peaked in Q2. After nearly a year of negative drag on revenue growth for the hyperscalers, it appears that cloud infrastructure customers are shifting their focus away from workload optimization and back towards the deployment of new ones. At least that is what Amazon's CEO told us in the opening statement of their earnings release. While the hyperscalers delivered revenue growth rates that decelerated from the prior year, they are now showing an uptick sequentially from Q1.Venturing into Fashion TechExploring the convergence of fashion tech, entrepreneurship, and fashion business. Listen on: Apple Podcasts Spotify AI & Aliens Unveiled • The WordThe Word pulls the veil on AI and AliensListen on: Apple Podcasts Spotify

AI has crashed onto the investing stage in 2023, driving significant stock price gains for several companies. Some, like Nvidia and Microsoft have already projected a direct revenue benefit as part of recent earnings reports. Others have indicated they expect AI to drive demand tailwinds going forward as part of management commentary. Venturing into Fashion TechExploring the convergence of fashion tech, entrepreneurship, and fashion business. Listen on: Apple Podcasts Spotify AI & Aliens Unveiled • The WordThe Word pulls the veil on AI and AliensListen on: Apple Podcasts Spotify

After guiding for a sequential 4% drop in revenue for Q1, MongoDB delivered a strong beat. More importantly, their preliminary estimate for Q2 revenue would achieve a reacceleration of annual growth if they outperform at the same level as Q1. The revenue projection for Q2 even leapfrogged past the analyst consensus for Q3. While the market expected some conservatism, this level of outperformance caught investors by surprise, with the stock surging 28% the next day. 

Snowflake's consumption business continues to feel pressure as large enterprise customers look for ways to optimize usage. While it seemed that management had a handle on forecasting the impact of this effect when they lowered guidance back in Q4, they still underestimated the trend. With the Q1 report, they once again brought down the full year revenue target.This is a summary of the more detailed post at Software Stack Investing.

Datadog stock surged 45% over the month of May, following their earnings report on May 4th. The results aligned with the common theme of "better than expected", shared with several other software companies reporting results recently. This outperformance appears to have set a baseline across the software sector, with upward momentum building as more companies report results. A new tailwind has been excitement around the potential for AI to drive an incremental demand cycle for software and security infrastructure. 

Following their Q1 earnings report on May 3rd, Confluent stock jumped by 16%. Since then, CFLT has continued appreciating, recently passing their previous high for 2023. While the report itself was pretty good (but not outstanding), the market appears to be anticipating more growth to come. Perceived AI tailwinds are likely at play. In order to capitalize on the potential advantages from advanced insights and new proprietary AI models, enterprises need access to all their data in one place. It should be filtered, consistent and recent. As the leading independent provider of data streaming, and soon stream processing capabilities, Confluent is well positioned to address this demand.The Physician Syndicate: Angel Investing | Venture Capital | Startups | Personal FinanceThe Physician Syndicate Podcast: A podcast for physicians to jump into the startup world. Listen on: Apple Podcasts Spotify The Imposter Syndrome Network PodcastThe Imposter Syndrome Network (ISN) is a community of technology professionals who...Listen on: Apple Podcasts Spotify

After setting an optimistic target for full year 2023 revenue growth in early February, Cloudflare management was forced to reset guidance lower after sales cycles unexpectedly elongated in March. While this can be attributed to exogenous effects like banking turmoil and macro conditions, investors are left guessing whether the Q1 results were a one-time speed bump or a precursor to further deceleration in growth.The Physician Syndicate: Angel Investing | Venture Capital | Startups | Personal FinanceThe Physician Syndicate Podcast: A podcast for physicians to jump into the startup world. Listen on: Apple Podcasts Spotify The Imposter Syndrome Network PodcastThe Imposter Syndrome Network (ISN) is a community of technology professionals who...Listen on: Apple Podcasts Spotify

Coming out of 2022, the catchphrase of the Q4 earnings reports from the hyperscalers was "customer workload optimization". This referred to the process by enterprise customers of scrubbing their cloud infrastructure bills for savings. This exercise introduced a headwind to revenue growth, offsetting the positive impact of new customer cloud migration projects and digital transformation efforts. This effect drove deceleration in Q4 revenue growth rates for AWS, Microsoft Azure and GCP.The Physician Syndicate: Angel Investing | Venture Capital | Startups | Personal FinanceThe Physician Syndicate Podcast: A podcast for physicians to jump into the startup world. Listen on: Apple Podcasts Spotify

Following disappointing results from the hyperscalers, Confluent was one of the first independent software infrastructure providers to report Q4 earnings on January 30th. Further complicating the picture, they preceded that report with an announcement of an 8% staff reduction on January 26th. That filing included top-level Q4 results. This flurry of news overshadowed two key points from the reports that subsequently became clear.For the full report, go to SoftwareStackInvesting.Talking Trading - Expert trading tactics so you can excel in the sharemarket.This is how traders and investors excel.Listen on: Apple Podcasts Spotify

With MongoDB's Q4 earnings report following most peers in the software infrastructure space, investors were bracing for decelerating revenue growth and a conservative guide for the upcoming year. MongoDB delivered just that. While Q4 notched a nice beat on revenue with growth of 36% annually, the preliminary guide for FY2024 came in at just 16% growth, almost 10% below analyst estimates. Talking Trading - Expert trading tactics so you can excel in the sharemarket.This is how traders and investors excel.Listen on: Apple Podcasts Spotify

Leading up to Snowflake's Q4 FY2023 earnings report, investors felt insulated from the risk of a low revenue guide for the full year. This concern had been abated in the Q3 report, as management blunted a reduced Q4 revenue guide with a preliminary estimate that FY2024 would deliver product revenue growth of 47%. During the Q3 earnings call, this had the immediate effect of propping up the lagging after-hours stock price. Talking Trading - Expert trading tactics so you can excel in the sharemarket.This is how traders and investors excel.Listen on: Apple Podcasts Spotify

After enjoying several years of hypergrowth, Datadog's revenue outlook for this year reflects a substantial slowdown. The challenge for investors is to discern whether annual growth in the mid-20% range is the new norm for Datadog or reflective of headwinds from the broader pullback in IT spend.  For the complete review, check out the blog: https://softwarestackinvesting.com/datadog-ddog-q4-2022-earnings-review/

Cloudflare's Q4 FY2022 earnings report was much anticipated by the market. Like other software infrastructure companies with their fiscal Q4 aligned to the calendar year, investors received their first firm view of guidance for not just the current quarter, but also the full year of 2023. Given trends that I discussed in a prior post, results from the hyperscalers pointed to further deceleration in cloud utilization as a consequence of workload "optimization" by customers. As the hyperscalers generally only project results a quarter forward, investors lack a clear signal as to when optimization headwinds might abate. A few software companies reported in the interim, providing some support for a view that software infrastructure demand might level out over the full year.

Over the last two weeks, we received earnings results from the three hyperscalers - AWS, Google Cloud Platform and Microsoft Azure. Additionally, several software companies reported, providing another view of trends in software infrastructure and developer tooling. If that wasn't enough, various economic reports and a Fed meeting were mixed in. I won't cover the macro developments, beyond commenting on how they influenced market performance during the period and exacerbated the market's reaction. Dev InterruptedWhat the smartest minds in engineering are thinking about, working on and investing in.Listen on: Apple Podcasts Spotify All Business. No Boundaries.Welcome to All Business. No Boundaries, a collection of supply chain stories by DHL...Listen on: Apple Podcasts Spotify

ServiceNow has evolved over the last ten years from a specialized ITSM provider to a full-featured low code platform with ready-made solutions for a number of common enterprise business functions.  If you were to believe the often hyperbolic CEO, ServiceNow will become the only software platform needed by enterprises to address digital transformation.  While their product expansion has been impressive, I think their scope will land somewhere in between.Dev InterruptedWhat the smartest minds in engineering are thinking about, working on and investing in.Listen on: Apple Podcasts Spotify

Okta has undergone a lot of change over the last two years. In 2020, the company was considered the leading independent provider of IAM (Identity and Access Management) services, enjoying great brand recognition and rapid growth. They had achieved strong penetration in the workforce identity space and were tracking to extend their reach into customer identity. Okta had labelled their product category as the Identity Cloud and attributed an estimated TAM of $55B (which they have further increased to $80B). They were well positioned to consolidate this new market segment around solutions to manage identity for both enterprise organizations and application developers.Manufacturing MattersInsights and interviews discussing trends, innovations, and advanced automation technologyListen on: Apple Podcasts Spotify

Confluent stock recently bounced off its 52 week low, yet still trades under the closing price from 2022. This is in spite of posting strong results in their Q3 report in early November, which drove an 11% after-hours pop. More broadly, Confluent is part of a basket of companies that provide enterprises with software infrastructure and services to power their digital experiences. Entering 2023, we see pressure on this basket, associated with concerns around the durability of growth. This effect, along with lingering headwinds from the path of interest rates and macro volatility, has ratcheted down expectations for the software infrastructure basket.Manufacturing MattersInsights and interviews discussing trends, innovations, and advanced automation technologyListen on: Apple Podcasts Spotify

At their Analyst Day in September, the leadership team set an ambitious growth target for $2B in revenue by FY2025. As we are halfway through Elastic's FY2023, this represents roughly a 2x increase in revenue within 2.5 years. When the leadership team presented the model for this target, they projected a revenue CAGR of 36% to reach it. That would represent an acceleration from the current growth rate in the low 30% range. Manufacturing MattersInsights and interviews discussing trends, innovations, and advanced automation technologyListen on: Apple Podcasts Spotify

In Q3, MongoDB reversed a number of the trends that hampered their Q2 earnings report. They delivered a strong beat on revenue growth, a return to positive operating margin and a nice bump in customer activity. The market reacted as positively to the Q3 report as it did negatively for Q2, pushing the stock up 23% the following day. Since then, MDB stock has appreciated further and now hovers around $200 a share. This is still below the $241 close the day after the Q2 report, but is well above the 52 week low of $135 touched before Q3 earnings.

 In this podcast, I will discuss indicators that are the catalysts for changing my  position. I had owned FSLY during its COVID driven surge in 2020, enjoying price appreciation from the $20 range in May 2020 to break $100 by August. After some disappointing earnings reports later in 2020, I began reducing my position in increments around $80-$90 and closed it in early 2021. The stock continued to underperform in 2021, dropping below $10 in 2022. While software infrastructure stocks in general have lagged in 2022 due to macro effects, FSLY began its slide in 2021. Yet, peers were hitting all-time highs.Dev InterruptedWhat the smartest minds in engineering are thinking about, working on and investing in.Listen on: Apple Podcasts Spotify

Snowflake reported their Q3 FY2023 earning results on November 30th. The company beat revenue estimates, delivering 67% annual growth. The Q4 product revenue guide, however, missed expectations by about 2%, with annual growth decelerating to 49%. Initially, the market's reaction was unfavorable, as the stock dropped by over 10% after hours. At the tail end of the guidance portion of the call, however, management shared a preliminary outlook for next year (FY 2024) for 47% revenue growth with 23% FCF margin. Dev InterruptedWhat the smartest minds in engineering are thinking about, working on and investing in.Listen on: Apple Podcasts Spotify All Business. No Boundaries.Welcome to All Business. No Boundaries, a collection of supply chain stories by DHL...Listen on: Apple Podcasts Spotify

While lay-offs are painful for those affected and the crypto implosion has seriously impacted some investors, there is a silver lining. As the exuberance of 2021 meets the economic reality of 2022, the intense battles for talent will calm down. We will see less inflated compensation packages and SBC grants should moderate. Companies who are still hiring will avoid the frenzied competition for talent from 2021 and can sidestep bidding wars (if they occur at all).

Datadog's Q3 earnings report was well-received by the market, with the stock popping as much as 9% after the release. Considering the macro backdrop and their outperformance during 2021, I thought the results were favorable. Datadog is maintaining its rapid cadence of launching new products and cross-selling them into existing customers, supporting its elevated DBNRR. The growth rates of customers with multiple product subscriptions have been reliably intact, implying little competitive infringement either from incumbent providers or new start-ups. 

Snowflake held a Snowday event on November 7th in San Francisco, as part of its Data Cloud World Tour. Similar to prior Snowdays, the Snowflake team used the occasion to showcase new product innovations and to interact with customers. During the event, they made a number of product announcements and program updates. The product team emphasized that these were not just a rehash of announcements made during the Summit conference in June, reinforcing the fact that Snowflake has been continuing to innovate on its platform.

Expectations for Cloudflare's Q3 2022 report were high, particularly following their strong Q2 earnings. As macro headwinds weighed on the quarter's performance, NET sold off following the report. While I don't see anything troubling in the results within the context of the flagging IT demand environment, the market's reaction is understandable given uncertainties going forward. 

As we kick off Q3 earnings season for software infrastructure companies, the hyperscalers set the tone with mixed results. AWS and Azure experienced further deceleration in revenue growth, while Google Cloud surprised with a slight acceleration.

Datadog introduced a number of new products and enhancements at their annual user conference last week. Expectations were high coming into the event, as Datadog often holds back new releases for several months in order roll out a parade of goodies. Once again, they stepped up the pace, highlighting 18 separate product announcements versus 10 at Dash a year ago. The breadth and scope of their product reach continues to expand. 

One of Snowflake's newer growth strategies, beyond their core data platform, is to enable other companies to build their businesses on top of Snowflake. The value proposition is that new companies with a heavy data processing function in their product can bootstrap their launch by leveraging Snowflake's platform. There are multiple benefits in taking this approach, including reducing time to market, eliminating infrastructure overhead and avoiding hiring dedicated technical staff. 

After promoting 20 products and enhancements to general availability during GA Week, Cloudflare rolled through Birthday Week with even more announcements. The pace of product execution is staggering. As is typical with Birthday Week, we got a view into what to expect next from the Cloudflare product team, along with some interesting new go-to-market programs.Dev InterruptedWhat the smartest minds in engineering are thinking about, working on and investing in.Listen on: Apple Podcasts Spotify

GA Week kicked off with the standard blog post introducing the themes for the week. This innovation week provided an opportunity for Cloudflare to close out on a number of product launches that have occurred over the last year, with some going back to the prior Birthday Week in 2021. The scope was enormous - Cloudflare brought over 20 products and enhancements to general availability over the course of the week. Many of these have a direct revenue component, or represent an add-on to an existing customer bundle. Dev InterruptedWhat the smartest minds in engineering are thinking about, working on and investing in.Listen on: Apple Podcasts Spotify

Zscaler delivered an impressive earnings report to cap off their fiscal year, demonstrating their ability to capitalize on strong demand for their leading Zero Trust solution. Coming into the report, investors were concerned about decelerating billings, worsening operating leverage and the need to provide an out of cycle fiscal year guide. Additionally, competitors like Palo Alto and Cloudflare had been increasingly vocal about customer wins. None of these factors appeared to impact the Q4 report, however, with Zscaler re-accelerating billings growth and highlighting several enormous enterprise and federal customer lands. This is the audio summary. For the complete report, visit softwarestackinvesting.com

After fairly positive earnings in Q1, MongoDB's Q2 report reflected increased pressure from the macro environment. Product-market fit, competitive position and GTM motion with large customers all remain consistent. What appears to have changed is a marked slowdown of utilization expansion for specific customer segments, compressing revenue growth as a consequence of MongoDB's consumption model. This is the audio summary, for more detail, visit SoftwareStackInvesting.com.

After two quarters of mixed results, Snowflake reignited investor sentiment with their Q2 earnings report. Revenue beat prior estimates for the quarter by a large margin, with management upping forward projections as well. This is the audio summary. For a more detailed view, check out the post at softwarestackinvesting.com. 

Cloudflare beat revenue projections for Q2 and raised estimates for the remainder of the year. More significantly, they demonstrated a renewed commitment to deliver positive free cash flow, reversing the backsliding in Q1's report. This is the audio summary. For the full report check out SoftwareStackInvesting.com. 

GitLab stock has nearly doubled since bottoming in May and reporting strong Q1 FY2023 results on June 6th. As we are three quarters into their life as a public company, I wanted to dig into the story and begin considering it for an investment. Personally, I have used the product with a previous engineering team and was impressed by the ease of use and integration of multiple steps in the software development lifecycle. Since then, GitLab has expanded their offering and are setting a broader vision to become the "One DevOps Platform".This is the audio summary, the complete article with greater detail can be found at softwarestackinvesting.com. #StackInvesting

Zscaler unveiled a number of product enhancements during their Zenith Live conference in June, demonstrating why they are still the leader in Security Service Edge. They continue to expand the capabilities of their core Zero Trust platform, extending secure connectivity for enterprise users into application workloads and now IoT devices.This is a review of the announcements made during Zenith Live and discussion of how these further solidify Zscaler's position in Zero Trust. I will also draw some comparisons to Cloudflare's progress and share my investment approach for this space.This is the audio summary. For complete details, visit the SoftwareStackInvesting.com post to learn more. 

Databricks held their annual Data + AI user conference from June 27 – 30 in San Francisco. The event was packed with announcements and informative sessions for 5,000 in person attendees and 60,000 virtually. In this post, I will review Databricks' product strategy, what was announced at Data + AI and how it all relates to Snowflake.This is an audio summary. For more detail, check out the post on SoftwareStackInvesting.com

Cloudflare held another innovation week from June 20 – 24, this time focused on Zero Trust solutions. They introduced a number of new capabilities and aligned their marketing message around what is expected for a full-featured Zero Trust SASE platform. This is an audio summary of the post on SoftwareStackInvesting.com. For full details, please visit the website.  

Snowflake held their annual user conference, Snowflake Summit, in Las Vegas last week. Beyond the new product features, Snowflake updated their overall platform positioning and provided insight into future product directions. Mixed in with this was an Investor Day session, which included more granular financial detail. In this post, I will focus on the platform updates and product strategy, as I they provide the foundation for the next phase of Snowflake's growth. 

MongoDB leadership used the conference to introduce a number of new product offerings and enhancements. They also hosted an Investor Session to tie the product announcements to MongoDB's broader expansion strategy. The overall theme was to enable customers to address more application workloads with the MongoDB platform. Given the breadth and depth of the product improvements announced during MongoDB World, I think they easily achieved this goal.This is the audio summary of a larger post on MongoDB World, which can be found on SoftwareStackInvesting.com

Summary of the post on MongoDB's earnings report published June 6, 2022. Full details on the report with supporting graphics and links can be found at SoftwareStackInvesting.com.

First Look at Snowflake's Q1 FY2023 Earnings Report published May 30, 2022.This is a summary of the post for those of you who want to consume the information on the go. The full post with in depth detail can be found at SoftwareStackInvesting.com.