As we reflect back on the just completed Q3 vertical software sector earnings season, we dig into the relative performance of 2U (NASDAQ:TWOU) and its peers.
Software is eating the world, and while a large number of solutions such as project management or video conferencing software can be useful to a wide array of industries, there are industries that have very specific needs. Whether it is life-sciences, education or banking, the demand for so called vertical software, addressing industry specific workflows, is growing, fueled by the pressures on improving productivity and quality of offerings.
The 11 vertical software stocks we track reported a weaker Q3; on average, revenues were in line with analyst consensus estimates, while on average next quarter revenue guidance was 2.32% under consensus. Tech stocks have been hit the hardest as investors start to value profits over growth, but vertical software stocks held their ground better than others, with the share prices up 5.83% since the previous earnings results, on average.
Originally named 2tor after the founder's dog Tor, 2U (NASDAQ:TWOU) provides software for universities and colleges to deliver online degree programs and courses.
2U reported revenues of $232.2 million, down 0.05% year on year, in line with analyst expectations. It was a weak quarter for the company, with declining revenue and gross margin.
"We completed our strategic realignment and accelerated 2U's transition to a platform company under the edX platform during the quarter," said 2U Co-Founder and CEO Christopher "Chip" Paucek.
The stock is up 3.6% since the results and currently trades at $6.61.
Best Q3: Toast (NYSE:TOST)
Founded by three MIT engineers at a local Cambridge bar, Toast (NYSE:TOST) provides integrated point of sale (POS) hardware, software, and payments solutions for restaurants.
Toast reported revenues of $752 million, up 54.6% year on year, beating analyst expectations by 4.31%. It was a very strong quarter for the company, with a significant improvement in gross margin and exceptional revenue growth.
Toast achieved the fastest revenue growth among its peers. The stock is up 0.25% since the results and currently trades at $20.05.
Is now the time to buy Toast? Access our full analysis of the earnings results here, it's free.
Weakest Q3: Upstart (NASDAQ:UPST)
Founded by the former head of Google's enterprise business Dave Girouard, Upstart (NASDAQ:UPST) is an AI-powered lending platform that helps banks better evaluate the risk of lending money to a person and provide loans to more customers.
Upstart reported revenues of $157.2 million, down 31.2% year on year, missing analyst expectations by 7.2%. It was a weak quarter for the company, with declining revenue and underwhelming guidance for the next quarter.
Upstart had the weakest performance against analyst estimates. The stock is down 14.2% since the results and currently trades at $16.35.
Founded in 2011 before any mass market VR headset was released, Matterport (NASDAQ:MTTR) provides the hardware and software necessary to turn real world spaces into 3D visualization.
Matterport reported revenues of $37.9 million, up 37.3% year on year, beating analyst expectations by 5.69%. It was a very strong quarter for the company, with exceptional revenue growth and guidance for the next quarter above analyst'expectations.
Matterport delivered the strongest analyst estimates beat among the peers. The company added 41,000 customers to a total of 657,000. The stock is up 2.47% since the results and currently trades at $3.10.
Started as a game studio by three friends in a Copenhagen apartment, Unity (NYSE:U) is a software as a service platform that makes it easier to develop and monetize new games and other visual digital experiences.
Unity reported revenues of $322.8 million, up 12.7% year on year, missing analyst expectations by 0.85%. It was a weak quarter for the company, with a decline in net revenue retention rate and decelerating growth in large customers.
Unity scored the highest full year guidance raise among the peers. The company lost 10 enterprise customers paying more than $100,000 annually and ended up with a total of 1,075. The stock is up 42.6% since the results and currently trades at $30.68.
The author has no position in any of the stocks mentioned