Shares of enterprise cloud software provider Workday (WDAY) plunged 17.5% on Friday before closing the day down 12.5%. The carnage came after the company’s fiscal Q3 report, punctuated by weak forward guidance. WDAY might be a relatively small player in cloud software sales with an expected $1.55 billion (34% yoy growth) in the current fiscal year (2017), but trading at 9x those expected sales it demonstrates the scarcity of pure-play cloud software plays in the public markets.
Salesforce.com (CRM) has been the pure-play with any real scale. They are the fastest company ever to (its expected f2016) sales of $8.35 billion, primarily in SaaS (software as a service) and crm (customer re source management) software, expected to grow 25% yoy.
The 800 pound gorilla in the space is Oracle (ORCL), which stated on their fQ1 call on Sept 15th that SasS and PaaS (platform as a service) sales grew a whopping 77% yoy to $798 million, with total cloud sales in the quarter nearly $1 billion. CRM and ORCL are in a sort of cage match to get to the nice round number of $10 billion in annual cloud sales first, but at this point the only way ORCL beats CRM is to make an acquisition. Which brings me back to WDAY, a company that has never turned an annual profit, and its f2017 expected eps gain of 2 cents turns into a loss of $2.07 on a GAAP basis (a loss of $415 million). I’d be shocked if ORCL, or CRM for that matter was willing to slap a 20 to 30% premium on WDAY for those sales and those GAAP losses.
The entire sector has had the wind come out of its sales over the last month. CRM’s give back of 15% following their fQ3 results on Nov 17th is nothing short of dramatic. The stock held Friday at 1 year support at $67:
WDAY also held at support Friday at $70:
I’d be remiss not to mention ServiceNow (NOW) a $12.7 billion, $1.4 billion revenue cloud services company that also trades 9x sales, with massive GAAP losses (2016 expected adjusted eps of 69 cents which translates to a $2.71 loss!). NOW is down 13% in the last week, also finding some support Friday where it should have near $73:
And last but not least, ORCL’s chart. The company reports fQ2 earnings December 15th. The options market is implying about a 4% move between now and the close on Dec 16th, which is essentially in line with the average one day post earnings move over the last 4 quarters, and below the 10 year average of about 4.75%. ORCL found technical support at $38 on Friday:
So for those keeping score at home, CRM gave back all post earnings gains and then some since, WDAY was a blood bath, which makes might place greater emphasis on ORCL’s reaction to results next week.