Cloud software suffers a cold November rain. Can Snowflake and Salesforce turn the tide?

Autodesk Inc. ADSK
reported a slowdown in business spending on Tuesday as executives cut their billing outlook for the year, leading Mizuho office analyst Jordan Klein to conclude that the week after Thanksgiving could be the software earnings tipping point.

“I don’t want to be overly dramatic here,” Klein wrote in a Wednesday note, “but after a very difficult year,” with technology lagging software and the S&P 500, “the software sector is feeling on the point of potentially rolling hard if a series of key results next week are disappointing.

The list of cloud software companies reporting next week is long and led by two of the biggest names in the industry: cloud pioneer Salesforce.com Inc.
and young hot name Snowflake Inc. SNOW,
both of which report on Wednesday. They will be preceded by Intuit Inc. INTU,
Workday Inc. WDAY,
and CrowdStrike Holdings Inc. CRWD
Tuesday, and joined Wednesday by Okta Inc. OKTA,
Splunk Inc. SPLK,
Nutanix Inc.NTNX,
Box Inc. BOX
and Yext Inc. YEXT
Zscaler Inc. ZS cloud security name
ends the week Thursday with Veeva Systems Inc. VEEV
and UiPath Inc. PATH

Morgan Stanley analyst Keith Weiss said Salesforce looks best positioned this season among cloud companies, as executives are under pressure to show better-than-expected demand, margin protection and effort. to reduce risk in 2023.

“With companies generally catching up on the surge of impacts from deteriorating macro conditions in the 2H22 forecast, CY23 consensus estimates likely remain too high for many names, particularly given that most forecasts for 2023 are yet to come and that customer IT budgets for 2023 are skewed to be revised downward,” Weiss said in a note.

Wood, however, notes that while his audits indicate demand for core products was “constructive”, those for products from acquisitions like Tableau, Slack and Mulesoft indicate demand was “weaker”.

If next week turns sour, Klein sees Microsoft Corp. MSFT
and Oracle Corp. ORCL
as “potential defensives” as he thinks more money could migrate from software names into chipmaker stocks, which would be a U-turn from his call five months ago, speculating whether investors were taking money out of chips and putting it into software.

So far in November, while the S&P 500 SPX
gained 4.4%, the tech-heavy Nasdaq Composite Index COMP
rose 3.1%, and the iShares Expanded Tech-Software Sector ETF IGV
is up 0.9%, the Global X Cloud Computing ETF CLOU
is down 1.3%, the First Trust Cloud Computing SKYY ETF
is down 3.2%, and the WisdomTree Cloud Computing Fund WCLD
is down 7.6%.

This week in earnings

Salesforce is the only DJIA Dow Jones Industrial Average
component is expected to report this week, but nine S&P 500 companies are on the record. In addition to Intuit Tuesday, NetApp Inc. NTAP
and Hewlett-Packard Enterprise Co. HPE
must report; Synopsys Inc. SNPS
and Hormel Foods Corp. HRL
will join Salesforce on Wednesday; and Kroger Co. KR,
Dollar General Corp. CEO
and Ulta Beauty Inc. ULTA
are scheduled for Thursday.

Numbers and calls to monitor

Black Friday recaps: Early reports suggested little growth from Black Friday sales a year ago, despite inflation driving up prices overall. Select retail companies will have the opportunity to discuss exactly how their first holiday sales are going this week, with Ulta, Kroger and Dollar General being joined this week by Victoria’s Secret & Co. VSCO,
Five Below Inc. FIVE,
Big Lots Inc. BIG
and Petco Health and Wellness Co. WOOF
Additionally, Costco Wholesale Corp. COST
is expected to deliver November sales data on Wednesday, ahead of the full quarterly results just over a week later.