Cloud software is suffering from a cold November rain. Can Snowflake and Salesforce turn things around?

The week after Thanksgiving could determine if cloud software is still too fat or if there are some tasty leftovers for Wall Street.

It has been a rough month for cloud-software stocks, which experienced their worst week on record to kick off November and have seen cold rain continue to fall amid a perceived slowdown in business spending after a wave of cloud adoption in the first two years of thepandemic. Early results from Atlassian Inc. TEAM
and Twilio Inc. TWLO
started the downturn, and recent earnings have not revived the sector.

Autodesk Inc. ADSK
signaled a slowdown in business spending on Tuesday as executives trimmed their billings outlook for the year, leading Mizuho desk analyst Jordan Klein to conclude that the week after Thanksgiving could be the tipping point for software earnings.

“I do not want to be overly dramatic here,” Klein wrote in a Wednesday note, “but after a very rough year” — along with software lagging tech and the S&P 500 — “the software feels sector poised to potentially roll over hard if a slew of key results next week are disappointing.”

The slate of cloud-software companies reporting next week is long, and two of the biggest names in the sector, cloud pioneer Salesforce.com Inc. CRM
and hot young name Snowflake Inc. SNOW,
both reports on Wednesday. They will be preceded by Intuit Inc. INTU,
Workday Inc. WDAY
and CrowdStrike Holdings Inc. CRWD
on Tuesday, and will be joined on Wednesday by Okta Inc. OCT,
Splunk Inc. SPLK,
Nutanix Inc. NTNX,
Box Inc. BOX
and Yext Inc. YEXT.
Cloud-security name Zscaler Inc. ZS
rounds out the week on Thursday along with Veeva Systems Inc. VEEV
and UiPath Inc. PATH.

ticker

Expected report date

FactSet EPS consensus

FactSet revenue consensus

INTU

Nov. 29

$1.19

$2.5 billion

WDAY

Nov. 29

84 cents

$1.59 billion

CRWD

Nov. 29

32 cents

$575.1 million

CRM

Nov. 30

$1.22

$7.83 billion

SPLK

Nov. 30

25 cents

$847.5 million

OCT

Nov. 30

(loss) 24 cents

$465.4 million

SNOW

Nov. 30

5 cents

$539.6 million

ZS

dec. 1

26 cents

$340.7 million

Morgan Stanley analyst Keith Weiss said Salesforce looks best positioned among cloud companies this earnings season, in that execs are under the gun to show better-than-feared demand, margin protection and efforts to de-risk 2023.

“With companies generally playing catch-up in regards to pushing the impacts of deteriorating macro conditions into [second half of 2022] guidance, [calendar year 2023] consensus estimates likely remain too high across many names, particularly given most 2023 guidance is still to come and customers’ 2023 IT budgets are biased to be revised lower,” Weiss wrote in a note.

However, Cowen analyst Derrick Wood, who has an outperform rating, noted that while his checks indicated demand for Salesforce’s core products was “constructive,” demand for products from acquisitions like Tableau, Slack and Mulesoft appeared “weaker.”

Should next week turn sour, Mizuho’s Klein sees Microsoft Corp. MSFT
andOracle Corp. ORCLs
as “potential defensives,” as he believes more money may migrate from software names into chipmakers’ stock, which would be an about-face from his call from five months ago, when he speculated about whether investors were taking money out of chips and putting it into software.

So far, in November, while the S&P 500 SPX
has gained 2.4%, and the tech-heavy Nasdaq Composite COMP
has ticked 0.6% higher, the iShares Expanded Tech-Software Sector ETF IGV
has slipped1.9%, the Global X Cloud Computing ETF CLOU
has declined 3.8%, the First Trust Cloud Computing ETF SKYY
has fallen 5.6%, and the WisdomTree Cloud Computing Fund WCLD
has dropped 10.4%.

this week in earnings

Salesforce is the only Dow Jones Industrial Average DJIA
component set to report this week, but nine S&P 500 companies are on the pocket. In addition to Intuit on Tuesday, NetApp Inc. NTAP
and Hewlett-Packard Enterprise Co. HPE
are scheduled to report. Synopsys Inc. SNPS
and Hormel Foods Corp. HRL
will join Salesforce on Wednesday, and Kroger Co. KR,
Dollar General Corp. DG
and Ulta Beauty Inc. ULTA
are scheduled for Thursday.

The numbers and calls to watch

Black Friday wrap-ups: Early reports suggested not much growth from Black Friday sales over a year ago, despite inflation pushing prices higher overall. Some retail companies will get the opportunity to discuss exactly how their early holiday sales went this week, with Ulta, Kroger and Dollar General being joined this week by the likes of Victoria’s Secret & Co. VSCO,
Five Below Inc. FIVE,
Big Lots Inc. BIG
and Petco Health and Wellness Co. WOOF.
In addition, Costco Wholesale Corp. COST
is expected to provide November sales data on Wednesday, ahead of full quarterly earnings a little more than a week later.