Despite the fact that the largest technology companies have already released their results, with mixed outcomes, the earnings season is still ongoing. The coming week is also very rich in major releases. The first week of August will feature earnings mainly from “second-tier” and “third-tier” technology companies as well as industrial firms. Regardless of an industry or a company’s business model, earnings season is full of companies whose results have the greatest chance of surprising, either positively or negatively.

Fidelity National Information Services (FIS.US)

The provider of IT services for banks and financial institutions has lost most of its valuation over recent years. This is not only the result of the “SaaS apocalypse,” but of an actual deterioration in profits. Now, however, the company appears well positioned to attempt a trend reversal.

• Expectations are fairly low, but roughly USD 3.4 billion in revenue and about USD 1.47 in EPS are not the most important part of the earnings call.
• The company is rebounding from the “bottom,” but to regain investors’ trust it will be crucial to raise the EBITDA margin while increasing revenue, (at least) maintaining FCF, and reducing leverage.
• Sentiment will hinge on how the results are received and on the guidance. Management needs to show or promise improvement in the Banking Solutions and Capital Markets segments, mainly through ACV growth.

Technical analysis of the FIS.US chart (D1)

A strong technical signal pointing to a trend reversal would be a breakout from the narrowing descending triangle, followed by reaching and holding the ~USD 60 level. Source: xStation5

Atlassian (TEAM.US)

The software vendor is one of the companies the market has “doomed” because of AI, yet this is not visible in the results. The company is in a phase of rapid growth whose pace is clearly underestimated by the market.

• The market sees EPS at around USD 1.1, but the company has beaten expectations by low double digits to several dozen percent in its last 15 earnings calls.Importantly, this momentum is accelerating, and valuation momentum suggests the market is starting to shift its sentiment toward the company, though it is still not fully convinced.
• Importantly, this momentum is accelerating, and valuation momentum suggests the market is starting to shift its sentiment toward the company, though it is still not fully convinced.
• However, revenue or EPS is not the key.The most important metrics are cloud revenue and short-term receivables.Growth in this segment will need to stay above 25%.This matters because in the previous quarter the company achieved about 30% growth in key segments, and the market is currently pricing in normalization.
• The most important metrics are cloud revenue and short-term receivables.
• Growth in this segment will need to stay above 25%.
• This matters because in the previous quarter the company achieved about 30% growth in key segments, and the market is currently pricing in normalization.

The company has not been this well positioned to beat expectations in a long time.

Spotify (SPOT.US)

The music streaming platform operator has set the bar relatively low, through its own guidance. One might even speculate that it is too low.

• Management has prepared the market for USD 4.8 billion in revenue, 778 million active users (including 299 million “Premium”), and a gross margin of 33.1%.
• Given the company’s historical growth rate, the expected pace is conservative, if not overly cautious. Operating income of EUR 630 million in the previous quarter drove the share price down about 12%, because the market expected around EUR 680 million.A rise to EUR 700 million is within reach today and well above expectations.
• A rise to EUR 700 million is within reach today and well above expectations.
• This is not a bullish thesis without risk, however. R&D/AI costs or customer churn after price increases could pressure results.

Caterpillar (CAT.US)

This industrial company has delivered gains more typical of technology stocks. Expectations are very high and there is almost no room for error in the results. After the rally the company has experienced, it is positioned on a path toward a post-earnings correction.

Selected Caterpillar financial results

• The company’s recent gains are driven almost entirely by enormous demand fueled by data center expansion. The market expects about USD 19.4 billion in revenue and EPS of about USD 6.2. The “Energy & Transport” segment will be especially important.
• There are signs, however, that Q1 results included a meaningful seasonal normalization component. Revenue will liekly rise, but more slowly than the market expects, and the ability to expand margins may weaken.

DataDog (DDOG.US)

The company’s growth rate is huge, but as is often the case with growth companies and/or those with high operating leverage, there is no room for error and they are trapped by enormous market expectations.

• Beating the consensus of about USD 1.1 billion in revenue and USD 0.6 EPS will not be enough.Another increase in full-year guidance and growth in the number of customers in the +100k ARR segment will be necessary.
• Another increase in full-year guidance and growth in the number of customers in the +100k ARR segment will be necessary.
• In addition, the company has conditioned investors to expect around 30% year-over-year growth.
• Even for “hyper-growth” companies, that is a difficult level to sustain. After the share price has risen almost 100% YTD, even the smallest disappointment could trigger a sharp sell-off or profit taking.

Cloudflare (NET.US)

The company is doing very well in terms of growth, but the quality of the business is deteriorating.

• Revenue growth of 34% in Q1 surprised markets, but the margin fell from 77.1% to 72.8%.In the current market environment, this is a very negative signal.
• In the current market environment, this is a very negative signal.
• Management decided to reduce headcount by 20%.At this point it is still hard to determine whether this is optimization or a desperate attempt to boost a weakening margin. In any case, it is a risk that needs to be priced in.
• At this point it is still hard to determine whether this is optimization or a desperate attempt to boost a weakening margin. In any case, it is a risk that needs to be priced in.
• Beyond margin and profit, the market may also look at the quality of growth.For a SaaS company, that will mainly mean the level of short-term receivables, net ARR, and growth in the number of “+100k” customers.
• For a SaaS company, that will mainly mean the level of short-term receivables, net ARR, and growth in the number of “+100k” customers.