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Baird 2022 Q4 Software Earnings Insights

In this report, the Baird team provides insights into earnings report trends and key themes in Q4:


Emerging this quarter:

  • 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

Renn Anderson

Tom Schadewald

Kotryna Smith

Patrick Doyle