Barclays analyst Raimo Lenschow has reflected on the firm’s software coverage as companies prepare to report Q1 earnings.
Lenschow argues that Q1 will be a “difficult” quarter for software companies as they face FX and macro headwinds, as well as tougher comps.
“Our VAR survey points to a moderating environment for the current quarter and the outlook. Given the increased macro uncertainties, this is not a total surprise, but it is interesting to note that this is not just a European phenomenon as our survey interviews US VARs. We are not sure how much of this more negative sentiment will show up in Q1 results yet, but there seems less certainty in the overall outlook,” the analyst said in a client note.
The survey results yielded cautious signals on Microsoft (NASDAQ:MSFT).
“We are not sure if this was a one-off survey issue, or a real underlying change in momentum, but investors should take note,” Lenschow added.
The analyst is positive on two software names that should beat consensus views: Datadog (NASDAQ:DDOG) and Qualtrics (NASDAQ:XM). On the latter, the analyst wrote:
“We expect a mid-to-high single digit beat to both billings and revenue. This is slightly higher than historic levels and hence, it should lead to a positive share price reaction. In addition, we expect growing excitement from management around the Clarabridge cross-sell opportunity with the newly branded offering having been launched in February. With NRR already at 128% in Q4 (pre-Clarabridge), we can see the opportunity for XM to move to best in class retention rates of +130% over the coming quarters.”
Similarly, the analyst notes that Datadog is facing easy Q1 comps.
“Datadog seems to have all the momentum in the Observability space and hence we expect another quarter of accelerating growth. DDOG prices in USD and hence there should not be FX headwind like we have for other names. We know comps are getting tougher but more in the back-half of the year which is why we think it is still worth focusing on the name now,” Lenschow added.
A new price target on Datadog is $190.00 per share, down from $210.00.
By Senad Karaahmetovic