Blogs -I/O Fund Q3 2021 Cloud Stock Earnings Preview – December Edition

I/O Fund Q3 2021 Cloud Stock Earnings Preview – December Edition


November 25, 2021

author

I/O Fund

Team

Tech earnings season is long and extends over six weeks. We are finally nearing the end of Q3 earnings season as the last round of cloud companies are expected to report in early December. The I/O Fund had previously highlighted Six Cloud Stocks to Watch During Q3 Earnings, all of which have since reported Q3 results.

One of the notable performers we highlighted was Bill.com, which reported an 11% topline beat during the quarter. I/O Fund analyst Bradley Cipriano discussed the company’s strong Q3 results in a short video presentation here.   

In the analysis that follows, we provide an update on the cloud category and review cloud stocks that have yet to report Q3 earnings. We also discuss key metrics that investors should be aware of heading into the final weeks of Q3 earnings season.

Cloud Stocks: Top 10 EV/FWD Revenue Multiples

Below is a table of cloud stocks that have yet to report Q3 results, ranked by their EV/FWD sales multiples. Snowflake has the richest multiple out of the 26 remaining cloud stocks set to report in the next few weeks. As we mentioned in our initial Q3 Cloud Earnings Overview, Snowflake is benefitting from increasing rates of data consumption, a trend that will likely continue into the future.

Somewhat cheaper than Snowflake but still sporting a premium multiple are Asana, Zscaler, and MongoDB. Asana most recently grew 72% YoY, an acceleration from the 61% and 57% YoY growth rate in Q2 and Q1, respectively. Zscaler sales grew over 55% for three consecutive quarters and sales are expected to grow 50% in the upcoming quarter. MongoDB has reported an acceleration in sales for three consecutive quarters, and the most recent 44% YoY growth was the fastest pace of growth since Q1 2020. These strong growth trends help illustrate why these firms have premium valuations.

https://images.prismic.io/bethtechnology/13a86116-1ae4-46f1-a8a1-cd16c8b43584_io-fund-q3-2021-cloud-stock-revenue-multiples.png?auto=compress,format

Cloud Stocks: Top 10 Three-Month Forward YoY Growth Rates

Below is a chart of forward sales growth expectations.

https://images.prismic.io/bethtechnology/b0a369d3-e7dc-486a-a952-2413735b98ca_io-fund-q3-2021-cloud-stock-yoy-growth-rates.png?auto=compress,format

Out of the remaining cloud stocks that must report Q3 earnings, Snowflake and Kingsoft are expected to grow the fastest. Snowflake is expected to grow sales 92% YoY as the company continues to benefit from rising rates of data consumption.

Chinese cloud infrastructure company, Kingsoft, is also expected to grow sales strongly in Q3 as they quickly scale their operations.

Sign up for I/O Fund's free newsletter with gains of up to 1100% - Click here

Other noteworthy mentions are CrowdStrike, Okta, and Zscaler, all of which have exposure to cyber security, a sector that has seen outsized growth recently. These three cyber security firms are expected to grow sales ~50% YoY heading into Q3 earnings, highlighting the overall strength in the cyber security market.

Top 10 Weekly Share Price Movements

Below is a table of the weekly change in share price for our universe of cloud stocks (week ended 11/19). Zscaler is a notable stand out and increased 6% during the week. It is up 85% YTD. Out of the 26 cloud stocks that have yet to report Q3 earnings, Zscaler and Snowflake were the only stocks that advanced last week.

https://images.prismic.io/bethtechnology/6c5aabde-f023-421d-8061-081ad5139493_io-fund-q3-2021-cloud-stock-weekly-share-price.png?auto=compress,format

Top 10 Changes in Sales Growth Estimates – Last 90 Days

The table below ranks cloud companies that have yet to report Q3 earnings by their topline revisions over the last 90 days. An increase in topline revisions signals that the Street believes that the company will grow faster than initially believed.

Smartsheet (SMAR) has had the largest topline revision, as the company recently increased their Q3 sales guidance from 40% YoY growth to 46% YoY growth, citing a robust demand environment for its platform.

Zscaler also had its topline revisions increase 5% over the last 90 days, above other cyber security players such as CrowdStrike and Okta. This increase in expectations signals that Zscaler is likely expected to outperform its peers in the near term.

 

https://images.prismic.io/bethtechnology/f838a743-9a2b-4fdf-a683-e928721c622f_io-fund-q3-2021-cloud-stock-sales-growth.png?auto=compress,format

Update on Top 5 EV/Fwd Revenue Multiples:

Overall stats:

  • Overall Cloud forward median:    15x
  • Top 5 Cloud forward median:       69x
  • Overall Cloud forward average:  22x

OVERVIEW OF EV/FWD SALES:

As shown below, the median and average cloud EV/Fwd revenue multiple has trended up throughout the year. Around June, the average multiple had started to increase faster than the median, and this bifurcation accelerated during Q3 earnings.

The average is being driven higher by premium valued cloud stocks (shown above). Since cloud has increasingly proven to be a sector where the leader ‘wins most’, this bifurcating trend may very well continue into the future.  

 

https://images.prismic.io/bethtechnology/aac74075-9490-4dc4-9acc-743c551ac90a_io-fund-q3-2021-cloud-stock-ev-fwd-sales.png?auto=compress,format

TOP 5 HIGH-RANKING EV/FWD SALES:

In the chart below, we can more clearly see the large dispersion in cloud valuations, as the top 5 premium valued cloud stocks have had their EV/Fwd sales multiples rapidly expand through Q3 earnings. Investors likely continue to believe that cloud is a “winner gets most” market, where the market leader captures the majority of the addressable market. This dynamic helps explain why the top 5 valued cloud stocks have grown their multiples much faster than the median.

https://images.prismic.io/bethtechnology/947c2a2c-ebfc-4d4d-b739-f20d4f2a36c2_io-fund-q3-2021-cloud-stock-high-ranking-ev-fwd-sales.png?auto=compress,format

EV TO FWD SALES - Growth Buckets:

We can further dissect the changes in cloud valuations by breaking up the group into high growth (>30% growth), mid growth (>15% and <30%), and low growth (<15%). The below chart shows that higher growth cloud stocks receive a higher multiple from the Street. Furthermore, high growth stocks used to be valued more richly back in Q4 2020 but have since seen their valuations normalize to a lower multiple. If Q3 cloud earnings come in strong, then the market may push valuations back up to their historic highs.  

https://images.prismic.io/bethtechnology/334d253a-dde1-4e85-8744-6746577c37d0_io-fund-q3-2021-cloud-stock-growth-buckets.png?auto=compress,format

WHO DELIVERS SUPERIOR EV TO FWD SALES?

The below chart provides a more holistic view of the remaining cloud stocks that have yet to report Q3 results, sorted by their EV to Fwd revenue multiples.

https://images.prismic.io/bethtechnology/f0bad0fa-fd9d-4bc0-b04f-57baf9c5a04d_io-fund-q3-2021-cloud-stock-superior-ev-fwd-sales.png?auto=compress,format

As highlighted in the above tables, Snowflake (SNOW) has the highest valuation of the group and its multiple is more than 600% higher than the cloud median of 15x.

Growth Adjusted EV/Fwd Revenue (EV/Fwd Rev/Fwd Growth)

The last chart (below) is based on EV to FWD sales but also takes into account forward growth expectations.

By scaling valuation relative to forward growth, we can more clearly see which companies are cheapest, based on their expected growth rate. A low value in the chart below means that a company is cheap relative to growth.

For example, Snowflake can be considered cheaper than Asana once we consider its strong growth rate expected next quarter.

Kingsoft (KC) is evaluated as the cheapest; given its robust growth rate and low valuation, the company has very low margins, which warrants a cheaper valuation.

 

https://images.prismic.io/bethtechnology/349074cc-57b9-444e-a5c5-5e56b9b17892_io-fund-q3-2021-cloud-stock-growth-adjusted-ev-fwd.png?auto=compress,format

CLOUD OUTLOOK

Finally, the last table we will be discussing includes aggregate cloud operating metrics.

The below table shows that cloud is performing strongly as the median forward growth rate is above 20%, while gross margins are high at over 70%. The median cloud company is also FCF positive with a 3% FCF margin.

https://images.prismic.io/bethtechnology/434f3c9b-6de5-4a86-a8b6-298fefb05312_io-fund-q3-2021-cloud-outlook.png?auto=compress,format

 

Strong growth and positive cashflows signal that the cloud category is healthy and performing well. I/O Fund expects this strength to progress going forward.

Find out which cloud stocks I/O Fund will be watching, heading into the final weeks of Q3 earnings, in analyst Royston Roche’s piece, “I/O Fund’s Q3 Earnings Preview of Cloud Stocks -December Edition.

I/O Fund is comprised of a team of analysts who share their research publicly as they build a portfolio of 30 stocks. Our team has record results for a retail Fund and we also have four-digit gains on some of our free newsletter coverage. You can learn more about our premium service by clicking here or sign up for our free newsletter here.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.

Gains of up to 485% from our Free Newsletter.


Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!

+370% on Nvidia

+485% on Bitcoin

*as of May 02, 2024

Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.

If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 2583% on Nvidia, 806% on Chainlink, and 665% on Bitcoin. The I/O Fund is audited annually to prove it’s one of the best-performing Funds on the market, with returns that beat Wall Street funds.

beth

More To Explore

Newsletter

With Bitcoin at All-Time Highs, Here’s What’s Next for COIN, HOOD

With Bitcoin at All-Time Highs, Here’s What’s Next for COIN, HOOD

Bitcoin and the spot BTC ETFs have clearly seen strong investor appetite since the approval in the beginning of the year. Alongside strong initial adoption of the new ETF class, we’re also seeing majo

June 13, 2024
Jensen Huang Presentation

Here's Why Nvidia Stock Will Reach $10 Trillion Market Cap By 2030

I believe Nvidia can achieve an astonishing $10 trillion market cap by 2030. As you’ll see from the key points to my thesis, there is a bull case where a $10T market cap estimate in a little over six

June 10, 2024
TSMC Building

Taiwan Semiconductor Stock: April Sales Soar From Advanced Nodes

Despite warning of a slowdown in the broader semiconductor industry this year, TSMC’s April sales surged 60% YoY and 21% MoM. This marks a positive start to the 20-percentage point acceleration to 33%

June 02, 2024
Jensen Huang Presentation

Nvidia Q1 Earnings Preview: Blackwell And The $200B Data Center

Nvidia’s management team will focus on the H200 in the upcoming earnings call, but make no mistake, we will end this year in full-on Blackwell territory. The new architecture is at the forefront of tr

May 28, 2024
Amazon Building

Amazon Stock: Nearing $2 Trillion Club From AWS Growth & Ads Catalyst

Amazon is on the verge of joining the $2 Trillion Club, driven by a 4-percentage point accelerating in AWS to 17% YoY growth combined with strong 25% growth in advertising revenue.

May 21, 2024
Big Tech Logos

Big Tech Q1 Earnings: AI Capex Increases As AI-Related Gains Continue

Recent Q1 earnings releases from Microsoft, Amazon, Alphabet and Meta reaffirmed that AI spending is continuing to increase through 2024 as companies seek AI-related revenue gains.

May 14, 2024
The Risk is Higher in the Market than it Feels

The Risk is Higher in the Market than it Feels

In this report, we will show that the sentiment readings over the last several months suggest investors should be cautious. This is backed up by our broad market analysis, which indicates that risk is

May 02, 2024
We Are Raising Our Bitcoin Targets To $106K - $190K

We Are Raising Our Bitcoin Targets To $106K - $190K

Bitcoin is an asset where the bulls pound the table to “buy, buy, buy,” and the bears relentlessly and stubbornly call it a scam. In reality, both are the wrong approach. This is because although Bitc

April 26, 2024
Investing In AI with Beth Kindig: 1-Hour Video Interview

Investing In AI with Beth Kindig: 1-Hour Video Interview

Jordi Visser, CIO and Chairman of Weiss Multi-Strategy Advisers, spoke to Beth Kindig on the Real Vision podcast on March 20th, to dive deep into AI’s potential for explosive economic growth, how to f

April 19, 2024
https://images.prismic.io/bethtechnology/Zh50DEaI3ufuUONy_SemiconductorStocksQ4OverviewAIGainsHeatUp.jpg?auto=format,compress

Semiconductor Stocks Q4 Overview: AI Gains Heat Up

Semiconductor stocks are standout performers so far in 2024, with investor appetite for AI stocks remaining elevated as AI chip leader Nvidia continues its streak of high growth.

April 15, 2024
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio, a forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2024
Get Free Weekly Analysis on the Best Tech Stocks