Off-Quarter Software Companies' Revenue Outperformance Decelerates Slightly Sequentially, RBC Says
Quarterly revenue outperformance of software companies that don't follow the standard reporting calendar decelerated slightly sequentially, with a "catch-up trade" into the end of the year likely, RBC Capital Markets said in a note e-mailed Monday.The mean June-quarter revenue beat for 33 off-quarter software companies was 2.1%, compared with a 2.2% outperformance in the previous quarter, according to RBC. The average on-quarter software company beat second-quarter revenue estimates by 2.6%, marking the seventh straight outperformance versus off-quarter, the brokerage said in the note to clients."(Off-quarter revenue) beats modestly decelerated (quarter on quarter) and are down (year over year), which we view as a result of bifurcating results, with application software largely driving down the beat magnitude," Matthew Hedberg, RBC's head of global technology, Internet, media, and telecommunications research, wrote.Infrastructure, vertical, and security vendors delivered the largest top-line beats, while front office and Software-as-a-Service platforms posted the smallest outperformance, according to RBC."Off-(quarter) earnings was a roller coaster, with the (iShares Expanded Tech-Software Sector ETF) being up as much as 8% in the three-week period of off-(quarter) reporters, but is now flat from the start," Hedberg said.This divergence stems from artificial intelligence shifting budgets away from discretionary and legacy software, while dollars flow toward vendors that directly enable and leverage AI capabilities, according to the note."Looking ahead, we believe there could be a catch-up trade into year-end, as software generally performs better as estimates begin to move higher on (third-quarter) prints, with management teams feeling more comfortable on raising guides and investors chasing benchmarks given software's solid performance in the past month," Hedberg said.RBC noted higher post-earnings confidence in cyber, infrastructure, and data leaders, including Salesforce (CRM), CrowdStrike (CRWD), Snowflake (SNOW), Palo Alto Networks (PANW) and MongoDB (MDB), while having incremental questions about application-focused peers such as Asana (ASAN), Intuit (INTU), and UiPath (PATH)."Investors continue to prefer cyber/infra/data leaders, but software has caught a broader bid and investors are widening their aperture beyond select AI leaders given generally solid software fundamentals and a brief sentiment boost from (Salesforce's) Claudeforce announcement," Hedberg wrote. "That said, there remains a bifurcation in results with application software generally underperforming the cyber/infra/data group."Late last month, Salesforce and Anthropic unveiled Claudeforce, an expanded partnership combining Claude's reasoning with the data, workflows, business logic, actions, and governance of the Salesforce platform.Recently, leading AI executives warned of increasing safety risks and urged the industry to advance AI model capabilities at a more measured pace.Price: $257.56, Change: $+9.84, Percent Change: +3.97%
