Net revenue retention contraction is offsetting pandemic gains as seat expansion continues to slow
Robust 2022 pipelines are supporting new business wins, while investors shift focus to pipeline replenishment outlook
Pricing increases are aiding 2023 revenue growth outlook
Quality of earnings is in focus as companies are increasing useful life of networking and server assets or incorporating other adjustments and delivering elevated profitability results
Continued 2022 earnings themes:
Platform solutions vs. “best of breed” point solutions competition in light of budget optimization and vendor consolidation, especially in the security category
IT budgets remain under scrutiny and investor focus remains on mission critical software
SMB customer base is demonstrating continued softness
Customer-friendly payment terms are continuing with impact on revenue visibility and free cash flow conversion
Elongated sales cycles and C-level engagement in contract negotiations are the new normal; focus on pipeline conversion and large deal push outs
Macro backdrop is causing narrower revenue beats and cautious outlooks, but customer trends and macro sentiment have stabilized
High-growth consumption models are delivering volatile results and forecasting sharp revenue growth cuts in 2023
Cloud Titans continue to benefit from optimization trends, but growth outlook has decelerated
Security vertical has proven resilient to macro headwinds
Q4 earnings recap:
Reported median Q4 Y/Y revenue growth was 18%, compared to 22% in Q3 and the 2021 quarterly median of ~26%
Revenue growth trends are projected to decelerate further with estimated Y/Y revenue growth of 17% in Q1 and 14% for CY 2023
Revenue growth projections for 2023 fell by ~2% when comparing estimates published pre and post Q4 earnings
Meanwhile, EBITDA margin estimates for 2023 have increased by ~2% from early 2022 as companies are focusing on profitability and providing guidance with positive margin revisions
Similar to last two quarters, 87% of software companies beat or delivered in-line revenue results, showing more challenging earnings seasons compared to the median of 93% since 2020
Baird welcomes the opportunity to connect and discuss these trends and Technology market activity. Contact Baird Equity Capital Markets Team to learn more.
Macie House +1-503-273-4937 mhouse@rwbaird.com
Renn Anderson +1-503-273-4903 rkanderson@rwbaird.com
Tom Schadewald +1-414-298-7479 tschadewald@rwbaird.com
