Snowflake and Splunk among software companies likely to face slowing sales growth

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While the lion’s share of the season’s tech earnings results have already arrived, the infrastructure software sector remains in line for a series of reports that could show slowing growth that could drag on for several months.

That’s the view of analysts at Morgan Stanley, who on Monday lowered their revenue forecasts for a handful of software makers such as Snowflake (NYSE:SNOW) and Splunk (NASDAQ: SPLK).

Analysts led by Sanjit Singh said factors such as longer sales cycles for companies that sell to large enterprises, slower usage trends that charge customers based on their product usage, and a Growing weakness in Europe contributed to a more cautious view of infrastructure software. sector.

“While software has staged an encouraging rally with the sector rising [more than] 20% from last month, second quarter results so far have largely confirmed that demand trends are moderating, with companies generally posting weaker beats [compared to the first quarter] and guided the second half more carefully [of the year]“, Singh said.

Among the infrastructure companies catching Morgan Stanley’s eye is Snowflake (SNOW). Analyst Keith Weiss cut his FY20 revenue forecast on Snowflake (SNOW) to $2.01 billion from $2.03 billion, and said that while there is evidence that activity of Snowflake (SNOW) “was quite positive” in the second quarter of 2022, resellers saw “more caution from customers in recent weeks” as well as more pauses or delays in project plans. Weiss also cut his price target on shares of Snowflake (SNOW) to $274 per share from $295.

Regarding Splunk (SPLK), Weiss said investors will look to see if the company can stabilize its cloud business after cloud services fell to 57% of the company’s software bookings in the first quarter of this year. year, compared to 63% in the second quarter a year ago. Weiss cut its 2022 revenue forecast on Splunk (SPLK) to $3.27 billion from $3.3 billion and also lowered its price target on the company’s stock to $128 per share from $138. .

Morgan Stanley analysts also lowered their 2022 revenue forecast for Sumo Logic (NASDAQ: SUMO) to $286 million versus $291 million, and Domo (NASDAQ: DOMO) to $313.3m from $315.6m. Sumo Logic (SUMO) also saw its share price target reduced to $10 per share from $11, while Domo (DOMO) target price was reduced to $68 per share from 74. $.

On Monday, Monness, Crespi, Hardt analyst Brian White also said Snowflake (SNOW) could be in line to see a drop in second-quarter earnings when it reports second-quarter results on Aug. 24.

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