Software revenues are expected to be healthy, but are showing some signs of slowing

French Microsoft headquarters, Issy-les-Moulineaux, France

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As software leaders such as Microsoft (NASDAQ: MSFT) and ServiceNow (NYSE: NOW) prepare to report their quarterly results later this month, the sector looks solid, but also heading into a state of uncertainty for the rest of the year.

That’s the analysis of Mizuho Securities analyst Gregg Moskowitz, who on Tuesday said that while the software industry remains healthy, there are “indications or moderation of demand” among customers. As a result, Moskowitz cut back on his revenue estimates for several software companies for the rest of this year.

Moskowitz said factors affecting the performance of the software sector include rising inflation, ongoing supply chain barriers, effects of currency exchange rates and the ongoing war between Russia and Ukraine.

“We’ve also heard more caution reports that include instances of extended sales cycles and more [price] discount, ”Moskowitz said.

A look at software revenue estimates shows why questions are growing about how the sector is set up for the current revenue period and in the coming months.

Moskowitz said he estimates that the revenue of software companies will, in general, grow by about 4% in the first quarter of the year. However, Moskowitz said some software leaders are likely to see “a significant currency headwind” because of how much the U.S. dollar has appreciated and strengthened over the past three months. As a result, Moskowitz said he expects revenue to grow overall, “but not to a significant level on average.

For Microsoft (MSFT), which is scheduled to report its fourth -quarter fiscal results on July 27, Moskowitz cut its revenue estimates of $ 2.29 per share, to revenue of $ 52.28B, from its previous forecast that $ 2.30 per share on sales of $ 52.45B. Moskowitz also cut its full -year Microsoft earnings (MSFT) forecast to $ 198.69B from $ 198.86B, and cut its target price on the company’s stock to $ 340 per share from $ 350.

Moskowitz noted that because Microsoft (MSFT) has “unusually lowered” its revenue outlook earlier in the recent quarter, “many are confused about Microsoft, and we know the reasons why.” However, Moskowitz said Microsoft’s Azure cloud business (MSFT) reviews were “better than we expected,” and showed no signs of customers withdrawing from their purchase plans.

“Microsoft’s growth opportunities in the medium term and beyond are greater than many realize,” Moskowitz said, adding that the company is “positioning for greater success in [the] clouds. “

Along with Microsoft (MSFT), ServiceNow (NOW) is also on tap to deliver its second quarter results on July 27. Moskowitz said that in the last quarter, there is evidence that ServiceNow (NOW) has experienced more slower business activity, longer. sales lead cycles and reduction in the size of some of its deals. But, he added that there are also reports of the company also seeing “some good large -scale activity”.

Moskowitz said he expects ServiceNow (NOW) to report $ 1.62B in subscription charges in the quarter, which will be a 22% increase over the same period last year, and that the company should see more growth in next few years while more business. implement company workflow automation systems.

However, due to broader issues moving into the software market, Moskowitz cut its quarterly sales outlook on ServiceNow (NOW) to $ 1.66B from $ 1.67B, and also lowered its full -year revenue estimate to $ 6.96B. from $ 7.03B.

IBM (IBM), which has placed more emphasis on software and cloud-based services, gave an example of how U.S. strength will affect business, as it said Monday that currency exchange rates will put little pressure to free it. cash flow this year. Investors responded by sending IBM (IBM) shares up more than 6% on Tuesday.

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