Wrapping up Q1 earnings, we look at the numbers and key takeaways for the vertical software stocks, including Q2 Holdings (NYSE:QTWO) 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 mixed Q1; on average, revenues beat analyst consensus estimates by 2.53%, while on average next quarter revenue guidance was 2.08% under consensus. There has been a stampede out of high valuation technology stocks, but vertical software stocks held their ground better than others, with share price down 8.14% since earnings, on average.
Q2 Holdings (NYSE:QTWO)
Founded in 2004 by Hank Seale, Q2 (NYSE:QTWO) offers software as a service that enables small banks provide online banking and consumer lending services to their clients.
Q2 Holdings reported revenues of $134 million, up 15% year on year, beating analyst expectations by 1.21%. It was a mixed quarter for the company, with a beat of analysts' estimates but slow revenue growth.
“The first quarter represented a solid start to the year,” said Q2 CEO Matt Flake.
The stock is down 28.3% since the results and currently trades at $37.99.
Best Q1: 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 $535 million, up 52% year on year, beating analyst expectations by 9.07%. It was an incredible quarter for the company, with a significant improvement in gross margin and a very optimistic guidance for the next quarter.
Toast achieved the strongest analyst estimates beat and highest full year guidance raise among its peers. The stock is down 2.45% since the results and currently trades at $13.91.
Is now the time to buy Toast? Access our full analysis of the earnings results here, it's free.
Weakest Q1: Unity (NYSE:U)
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 $320.1 million, up 36.3% year on year, missing analyst expectations by 0.31%. It was a weak quarter for the company, with revenue guidance for both the next quarter and the full year below analysts' estimates.
Unity had the weakest performance against analyst estimates in the group. The company added 31 enterprise customers paying more than $100,000 annually to a total of 1,083. The stock is down 31.7% since the results and currently trades at $32.80.
Unity has agreed to merge with ironSource (NYSE: IS) in a $4.4 billion all-stock transaction.
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 $253.3 million, up 8.97% year on year, in line with analyst expectations. It was a weaker quarter for the company, with a slow revenue growth and a decline in gross margin.
2U had the slowest revenue growth among the peers. The stock is up 6.62% since the results and currently trades at $9.98.
Founded in 1982 by John Walker and growing into one of the industry's behemoths, Autodesk (NASDAQ:ADSK) makes computer-aided design (CAD) software for engineering, construction, and architecture companies.
Autodesk reported revenues of $1.17 billion, up 18.2% year on year, beating analyst expectations by 2.06%. It was a mixed quarter for the company, with a decent beat of analyst estimates but a full year guidance missing analysts' expectations
The stock is down 10% since the results and currently trades at $172.32.
The author has no position in any of the stocks mentioned