Rob’s Journal
July 29, 2021
Nasdaq Composite: 14,778
S&P 500: 4,419
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Nasdaq UP 0.11%. Following yesterday’s advance of 102 points, the index today added 15 points. With steady selling pressure evident throughout the afternoon, the Nasdaq gave up its lunchtime gain of as much as 71 points. The RSI has stalled at 60.6. The Nasdaq is now 3.8% above its 50-day moving average of 14,234.
*After the close, these three TSP Portfolio companies reported their latest quarterly results:
—Atlassian (TEAM, $266.79—TSP Vulture Portfolio)—FQ4 (June) total revenue of $559.5 million (+30% year over year) easily topped the consensus estimate of $524.1 million. EPS of 24 cents beat the consensus by six cents. Free cash flow (FCF) of $164.2 million resulted in a FCF margin of 29%. The company added a whopping 23,311 net new customers (including 6,520 single-user Twilio accounts), taking the total customer base up to 236,118. Subscription revenue advanced 50% to $385.5 million (69% of total revenue), with growth accelerating from +43% in FQ3 and +36% in FQ2. For FQ1 (Sept.), Atlassian sees total revenue of $575 million to $590 million, well above the consensus of $540.8 million.
—Twilio (TWLO, $392.20—TSP Small-Cap Portfolio)—Q2 total revenue of $668.9 million easily beat the consensus estimate of $598.4 million. The Segment unit delivered revenue of $46.6 million. Top-line growth accelerated to 67% from 62% in Q1. The dollar-based net expansion rate rose 200 basis points sequentially to 135%. For Q3, Twilio sees revenue of $670 million to $680 million (growth of 50% to 52%), well above the consensus of $636.4 million.
—Zendesk (ZEN, $150.52—TSP Small-Cap Portfolio)—Q2 total revenue of $318.2 million rose 29%, an acceleration from Q1 growth of 26%. However, revenue missed the consensus estimate of $319.8 million by a small amount. Management says Q2 bookings were a record, but a greater percentage landed later in the quarter, negatively affecting Q1 revenue recognition. We’ll get more information on this top-line miss in the conference call. The quarter had good news as well, including total RPO growth accelerating to +58% from +49% in Q1. Also, the dollar-based net expansion rate jumped to 120% from 114% in Q1. For Q3, Zendesk sees revenue of $332 million to $337 million, in line with the consensus of $335.5 million. The company raised the lower end of its 2021 revenue guidance range.
*ServiceNow (NOW, $586.43—TSP Vulture Portfolio) shares just after the open surged to a new all-time high of $608.30. While the stock gave up virtually all of that early jump, the overall tone of the session was positive thanks to last night’s strong Q2 report. The core ITSM/ITOM business was particularly strong in Q2, contributing 61% of net new ACV. ITSM was included in 16 of the quarter’s top 20 deals, including 14 deals worth more than $1 million. ITOM was included in 15 of the top 20 deals, including six deals over $1 million.
Management called out robust net new ACV growth from new customers, with the average deal size up 50% year over year. There were five new customers that started with ACV over $1 million, all of which purchased five or more products, indicating broadening adoption. This wider-adoption trend is evident throughout the customer base: Of Q2’s top 20 deals, 18 included three or more products. In the emerging category, Creator Workflows were represented in 18 of the top 20 deals.
Bullish Wall Street price targets are now clustered in the $650 to $675 range. Goldman Sachs is among the most upbeat on ServiceNow, boosting its target to $725 from $695, pointing to Q2 outperformance across key metrics, continued net new ACV acceleration, solid core ITSM/ITOM performance and an organic lift to 2021 guidance for subscription revenue and subscription billings. The firm continues to expect 2H acceleration.
Cowen upped its NOW target to $670 from $620, saying Q2 results were a strong bounce-back from Q1. The firm thinks management has increased confidence in the 2H pipeline and sales cycle strength.
*JP Morgan raised its Microsoft (MSFT, $286.50—TSP Vulture Portfolio) price target to $310 from $300, calling out Microsoft’s FQ4 (June) robust commercial bookings growth of 30% and accelerated top-line growth of 21%.
*Alteryx (AYX, $76.86—TSP Small-Cap Portfolio) is expanding its relationship with consulting firm PwC from the initial U.S. alliance in February 2020. Alteryx will now bring together its analytics and data science automation with PwC’s services and technologies to help companies accelerate their digital transformations across APAC and EMEA.
*In the Vulture Portfolio, these stocks today hit new record highs:
—Arista Networks (ANET, $381.01)—All-time high: $383.09
—Marvell Technology (MRVL, $60.31)—All-time high: $60.38
—Palo Alto Networks (PANW, $399.00)—All-time high: $405.16
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