Software Stocks Weekly Summary: Who Are the Winners?
This week, earnings reports from multiple software stocks (including SaaS companies) showed that many companies exceeded revenue expectations, while GAAP EPS displayed a mixed/divergent trend. On November 3, $Palantir (PLTR.US)$ reported earnings that beat market expectations, but the stock still fell notably in after-hours trading due to its elevated valuation. $Hims & Hers Health (HIMS.US)$ exceeded revenue expectations, but its gross margin was below both the prior quarter and the year-ago period. Shifts in the weight-loss drug market landscape led the company to lower prices for generics. In reports released on November 4, $Spotify Technology (SPOT.US)$ significantly beat expectations. Monthly active users (MAU) rose to 713 million, topping the 711 million consensus. By contrast, $Shopify (SHOP.US)$ and $Tempus AI (TEM.US)$ showed profitability pressures. Although Shopify’s AI-driven store traffic has increased sevenfold since the start of the year and GMV rose significantly, gross margin declined. Free trial promotions in subscriptions and a change in the reporting scope for the PayPal-related business helped revenue but weighed on gross margin, leading to continued year-over-year contraction in gross margins for both subscription and merchant solutions this quarter. In addition, total expenses grew about 25.5% year over year this quarter, roughly in line with last quarter’s pace and remaining elevated. Because expense growth outpaced growth in gross profit dollars, this had a dilutive effect on margins.