K. Liu's Week in Review
Deal or no deal? Following earlier reports that Broadcom (AVGO) was close to acquiring Symantec (SYMC), headlines this week suggested the companies were at an impasse with Bloomberg reporting that Broadcom sought to reduce its bid for Symantec by over $1.50 per share from an agreed-upon price of $28.25 per share. Per CNBC, Symantec is unwilling to accept less than $28.00 per share. While the fate of the legacy security vendor remains in question, next-generation endpoint security provider CrowdStrike (CRWD) posted triple-digit growth in both total revenue and annual recurring revenue (ARR) in its first earnings release as a public company. CrowdStrike’s Falcon platform is comprised of a lightweight agent that can be deployed across desktops, servers, virtualized and cloud environments, IoT devices, containers, and mobile devices running on iOS and Android, and its proprietary Threat Graph database, which analyzes and stores all of the telemetry data collected by the agents. Customers may deploy any of the ten integrated modules that make up the Falcon platform addressing areas like endpoint security, threat intelligence, security and vulnerability management, and IT service management, which together amount to a total addressable market estimated at nearly $25 billion in 2019 and expected to exceed $29 billion in 2021. As all of the data captured is reused across the entire platform, customers can easily trial new modules with their own data, creating a high velocity cross-sell model. Reflecting these dynamics, management guided Q2 and FY ’20 revenue ahead of Street expectations with operating losses also comparing favorably versus consensus.
Microsoft (MSFT) also reported strong results this week, beating expectations top to bottom on strong double-digit growth in Office Commercial, Dynamics, LinkedIn, and Azure revenues. Management noted that “commercial bookings growth was significantly ahead of expectations, increasing 22% and 25% in constant currency, driven by strong renewal execution and an increase in the number of larger long-term Azure contracts.” Guidance for Q1 and FY ’20 was also strong, reflecting continued double-digit revenue and operating income growth. As for SAP (SAP), the company’s Q2 ’19 results fell short of Street expectations. Regardless, management reaffirmed prior guidance for FY ’19 and believes the company remains on track to deliver on its longer-term margin aspirations. Specific to the quarter, trade-related uncertainties in Asia contributed to softness in both cloud and on-premise bookings. However, pipelines in the region remain higher than a year-ago and reflect better coverage with respect to conversion rates, leaving management confident that the blip in Q2 will be short-lived. A strategic decision to embrace public cloud infrastructure partners that resulted in some workloads moving away from Hana Enterprise Cloud to joint engagements with partners also weighed on cloud bookings growth in Q2 albeit with a benefit to cloud gross margin. Over time, management anticipates these partnerships will boost cloud growth and aid SAP in achieving its longer-term cloud gross margin aspirations. While more of a pre-announcement, SharpSpring (SHSP) announced the addition of 290 new customers in Q2 ’19 expected to generate annual recurring revenues of $2.1 million. The company now has 1,854 agency partners utilizing and reselling its marketing automation platform, but management stated that changes to contractual terms from monthly to annual commitments directed at non-agency customers impacted sales in the quarter as did softness in international markets, specifically Brazil. Shares subsequently traded lower. The table below depicts each reporting company’s share price performance for the week, quarterly results versus expectations, and consensus estimate revisions for the current fiscal quarter and year.
Executive moves at contact center software provider Five9 (FIVN) dominated headlines early in the week due to the departure of James Nystrom, who led the company’s direct sales efforts in North America, to pursue an opportunity at a non-competitive early-stage firm. The company also announced that President Dan Burkland had recently restructured the sales organization to expand the company’s go-to-market operations, adding two vice presidents with enterprise contact center experience and promoting Andy Dignan to SVP of Global Channels and Services. Mr. Dignan most recently led global go-to-market efforts for Cisco’s collaboration business. Anand Chandrasekan also joins Five9 as Executive Vice President of Product Management and will have responsibilities for the strategy, roadmap and lifecycle of the company’s product portfolio. Mr. Chandrasekan most recently served as a Director at Facebook (FB) where he oversaw the developer ecosystem for its Messenger Platform. Worth noting, at the time of his departure from Facebook, over 300,000 active bots were active in the Messenger ecosystem and had exchanged eight billion messages between businesses and consumers, which we view as a positive indicator that adoption of messaging for support and conversational commerce is rising. As for other executive moves, ANSYS (ANSS) appointed Lynn Ledwith as its Vice President of Marketing. Ms. Ledwith most recently served as EVP of Global Marketing, Sales Operations and Enablement for Worldwide Clinical Trials. Last but not least, PTC (PTC) appointed Craig Melrose as EVP of its newly formed digital transformation solutions organization, which will build customer-facing solutions incorporating PTC’s CAD, PLM, IoT and AR technologies. Mr. Melrose joins the company from McKinsey where he led numerous operations and transformation initiatives during his 20-year tenure.
Earnings Releases
CrowdStrike Reports Fiscal First Quarter 2020 Financial Results
CrowdStrike Holdings (CRWD) reported Q1 ’20 revenue above expectations and guided Q2 and FY ’20 above consensus.
Total revenue was $96.1 million (+103.2% Y/Y), above consensus of $95.6 million. Non-GAAP operating income was $(21.9) million (-22.8% margin), in line with consensus of $(22.0) million. Non-GAAP EPS were also in line with the Street’s $(0.47).
Key metrics: annual recurring revenue was $364.6 million (+114% Y/Y); added 543 net new subscription customers and exited Q1 with 3,059 subscription customers; dollar-based net retention rate was in excess of 120%.
Guidance for Q2 includes revenue of $103.0-$104.0 million, non-GAAP operating income of $(29.1)-$(28.6) million, and non-GAAP EPS of $(0.24)-$(0.23), all of which exceeded Street expectations for $96.7 million in revenue, $(40.4) million in non-GAAP operating income and $(0.31) in non-GAAP EPS.
For FY ’20, management’s guidance calls for $430.2-$436.4 million in revenue, $(113.4)-$(110.4) million in non-GAAP operating income, and $(0.72)-$(0.70) in non-GAAP EPS, above consensus of $412.3 million in revenue, $(144.0) million in non-GAAP operating income, and $(1.02) in non-GAAP EPS.
Microsoft Cloud Powers Record Fourth Quarter Results
Microsoft (MSFT) reported strong Q4 ’19 results and guided Q1 and FY ’20 operating income above expectations.
Revenue of $33.717 billion (+12.1% Y/Y) exceeded consensus of $32.773 billion. Operating income of $12.405 billion also exceeded Street expectations for $11.237 billion. Non-GAAP EPS of $1.37 beat consensus of $1.21.
By segment, Productivity and Business Process revenue increased 14.3% Y/Y to $11.047 billion, Intelligent Cloud revenue rose 18.6% Y/Y to $11.391 billion, and More Personal Computing revenue increased 4.3% Y/Y to $11.279 billion.
Growth in the Productivity and Business Process segment was driven by a 25% increase in LinkedIn revenue and double-digit growth in Office Commercial and Dynamics revenues.
Intelligent Cloud growth was boosted by a 64% Y/Y increase in Azure revenue.
More Personal Computing growth reflected double-digit growth for Surface and Search Advertising and solid growth in Windows sales, which more than offset a 10% decline in Gaming revenue.
Management’s Q1 guidance implies revenue of $31.7-$32.4 billion, in line with consensus of $32.0 billion, and operating income of $11.05-$11.45 billion, above consensus of $10.90 billion.
Management’s FY ’20 guidance calls for double-digit revenue growth and stable operating margin, implying revenue and operating income of at least $138.4 billion and $47.25 billion versus consensus of $138.8 billion and $46.90 billion.
SAP: Quarterly Statement Q2 2019
SAP (SAP) reported Q2 ’19 results below consensus, but reaffirmed prior expectations for FY ’19.
Non-IFRS revenue of €6.656 billion (+10.7% Y/Y) was below consensus of €6.714 billion. Non-IFRS operating income of €1.816 billion (27.3% margin) was also shy of the Street’s €1.847 billion. Non-IFRS EPS of €1.09 missed consensus of €1.11.
Per management, software revenues were negatively impacted by trade-related uncertainty in Asia, but associated pipelines remain higher versus the year-ago period, leaving management unconcerned at this juncture.
Embracing cloud infrastructure partners, which resulted in some workloads on SAP HANA Enterprise cloud deals moving to joint engagements with these partners, also weighed on cloud bookings while benefiting cloud gross margins.
Key metrics: new cloud bookings totaled €494 million (+17% Y/Y); number of cloud deals totaled 3,609 (+19% Y/Y); number of on-premise software deals totaled 12,522 (-13.9% Y/Y).
S/4HANA added 600 customers in Q2, bringing the number of total customers to 11,500 (+29% Y/Y).
SAP SuccessFactors Employee Central added 180 customers in the quarter and now has over 3,350 customers.
Management reiterated prior FY ’19 guidance calling for €6.7-$7.0 billion in non-IFRS cloud revenue, €22.4-22.7 billion in non-IFRS cloud and software revenue, and €7.85-€8.05 billion in non-IFRS operating income.
Aspirational targets for FY ’20 and FY ’23 also remain unchanged.
SharpSpring Adds 290 New Customers in Q2 2019
SharpSpring (SHSP) announced that the company secured 290 new customers for its core marketing automation platform in Q2 ’19, which are expected to generate $2.1 million in annual recurring revenue.
The company had 1,854 agency partners using and reselling its marketing automation platform at quarter-end.
Management noted that a change in contract terms from monthly to annual directed at non-agency customers impacted near-term sales, and the company also experienced softness in sales internationally, specifically in Brazil.
Notable News
ANSYS Welcomes Lynn Ledwith as Vice President of Marketing
ANSYS appointed Lynn Ledwith as its Vice President of Marketing.
Ms. Ledwith previously served as Executive Vice President of Global Marketing, Sales Operations and Enablement for Worldwide Clinical Trials.
Five9 Announces Expansion of Its Go-To-Market Leadership
Five9 (FIVN) announced that President Dan Burkland, who has managed the sales organization for nearly a decade, recently restructured the sales organization.
Andy Dignan has been promoted to SVP of Global Channels and Services, joining the company from Cisco, where he led global go-to-market efforts for the collaboration business.
Two other vice presidents with enterprise contact center experience have also joined as part of the company’s go-to-market expansion.
James Nystrom, who most recently served as EVP, Sales in North America, has left the company to pursue an opportunity with an early-stage firm that does not compete with Five9.
Five9 (FIVN) announced that Anand Chandrasekaran has joined the company as EVP of Product Management and will oversee the strategy, roadmap and lifecycle of the company’s product portfolio.
Mr. Chandrasekaran most recently served as a Director at Facebook (FB) where he was focused on the Messenger Platform developer ecosystem.
PTC Appoints Craig Melrose to Lead New Digital Transformation Solutions Organization
Craig Melrose has been appointed Executive Vice President of PTC’s digital transformation solutions organization, a newly-formed group to build customer-facing solutions incorporating the company’s CAD, PLM, IoT and AR technologies.
Mr. Melrose is considered an expert on large-scale Industry 4.0 programs and joins the company from McKinsey where he led numerous operations and digital transformation initiatives.