Q2 Earnings Outperformers: Cloudflare (NYSE:NET) And The Rest Of The Software Development Stocks

As the Q2 earnings season comes to a close, it’s time to take stock of this quarter’s best and worst performers in the software development industry, including Cloudflare (NYSE:NET) and its peers.

As legendary VC investor Marc Andreessen says, "Software is eating the world", and it touches virtually every industry. That drives increasing demand for tools helping software developers do their jobs, whether it be monitoring critical cloud infrastructure, integrating audio and video functionality, or ensuring smooth content streaming.

The 11 software development stocks we track reported a mixed Q2. As a group, revenues beat analysts’ consensus estimates by 1.6% while next quarter’s revenue guidance was in line.

Inflation progressed towards the Fed's 2% goal recently, leading the Fed to reduce its policy rate by 50bps (half a percent or 0.5%) in September 2024. This is the first cut in four years. While CPI (inflation) readings have been supportive lately, employment measures have bordered on worrisome. The markets will be debating whether this rate cut's timing (and more potential ones in 2024 and 2025) is ideal for supporting the economy or a bit too late for a macro that has already cooled too much.

Thankfully, software development stocks have been resilient with share prices up 5.6% on average since the latest earnings results.

Cloudflare (NYSE:NET)

Founded by two grad students of Harvard Business School, Cloudflare (NYSE:NET) is a software as a service platform that helps improve security, reliability and loading times of internet applications and websites.

Cloudflare reported revenues of $401 million, up 30% year on year. This print exceeded analysts’ expectations by 1.6%. Despite the top-line beat, it was still a slower quarter for the company with a miss of analysts’ billings estimates.

“We had a strong second quarter, crossing $1.6 billion in annualized revenue and growing 30% year-over-year. The world is still complicated, but our team remained focused on execution and delivered terrific results, including a double-digit year-over-year improvement in sales productivity,” said Matthew Prince, co-founder & CEO of Cloudflare.

Interestingly, the stock is up 10.5% since reporting and currently trades at $82.21.

Is now the time to buy Cloudflare? Access our full analysis of the earnings results here, it’s free.

Best Q2: GitLab (NASDAQ:GTLB)

Founded as an open-source project in 2011, GitLab (NASDAQ:GTLB) is a leading software development tools platform.

GitLab reported revenues of $182.6 million, up 30.8% year on year, outperforming analysts’ expectations by 3.1%. The business had a strong quarter with an impressive beat of analysts’ billings estimates and a narrow beat of analysts’ ARR (annual recurring revenue) estimates.

GitLab delivered the fastest revenue growth and highest full-year guidance raise among its peers. The market seems happy with the results as the stock is up 15.6% since reporting. It currently trades at $51.64.

Is now the time to buy GitLab? Access our full analysis of the earnings results here, it’s free.

Weakest Q2: PagerDuty (NYSE:PD)

Started by three former Amazon engineers, PagerDuty (NYSE:PD) is a software-as-a-service platform that helps companies respond to IT incidents fast and make sure that any downtime is minimized.

PagerDuty reported revenues of $115.9 million, up 7.7% year on year, in line with analysts’ expectations. It was a softer quarter as it posted underwhelming revenue guidance for the next quarter and decelerating customer growth.

PagerDuty delivered the weakest full-year guidance update in the group. The company lost 76 customers and ended up with a total of 15,044. As expected, the stock is down 2.6% since the results and currently trades at $17.80.

Read our full analysis of PagerDuty’s results here.

Akamai (NASDAQ:AKAM)

Founded in 1999 by two engineers from MIT, Akamai (NASDAQ:AKAM) provides software for organizations to efficiently deliver web content to their customers.

Akamai reported revenues of $979.6 million, up 4.7% year on year. This number met analysts’ expectations. More broadly, it was a slower quarter as its performance in other areas of the business was disappointing.

The stock is up 9% since reporting and currently trades at $99.76.

Read our full, actionable report on Akamai here, it’s free.

Bandwidth (NASDAQ:BAND)

Started in 1999 by David Morken who was later joined by Henry Kaestner as co-founder in 2001, Bandwidth (NASDAQ:BAND) provides thousands of customers with a software platform that uses its own global network to provide phone numbers, voice, and text connectivity.

Bandwidth reported revenues of $173.6 million, up 19% year on year. This result was in line with analysts’ expectations. Aside from that, it was a mixed quarter as it also logged a significant improvement in its net revenue retention rate but a decline in its gross margin.

The stock is down 26.3% since reporting and currently trades at $16.78.

Read our full, actionable report on Bandwidth here, it’s free.

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