On Friday, Piper Sandler shared insights into the Cloud Automation Software (ETR:SOWGn) sector, focusing on expected guidance for the calendar year 2025 (CY25). The firm's analysis suggests that after a period of high estimates, many companies in this sector experienced a reduction in expectations as they entered the new year. However, several companies are anticipated to provide more formal guidance in the coming months.
According to Piper Sandler, the companies with the most promising setups for CY25 include IOT, RBRK, and ANET. IOT is expected to raise its revenue outlook to $1.55 billion, compared to the Street's expectation of $1.53 billion. RBRK could guide sales between $1.11 billion and $1.12 billion, with a Subscription Annual Recurring Revenue (Subs ARR) of approximately $1.32 billion, indicating potential mid-single digit growth throughout the year. ANET's initial outlook of 15-17% growth is considered conservative, especially considering the potential ramp-up to around $1.5 billion in total from their AI customer-vertical build.
Other companies, such as FSLY and MANH, have mixed outlooks. FSLY's projections will hinge on the growth of Edgio versus its top 10 customers and U.S. TikTok. The potential impact of Edgio, which could be as much as $40 million, is not fully factored into current estimates.
According to InvestingPro data, FSLY has shown revenue growth of ~11% over the last twelve months, with current revenue at $541 million. While the company maintains a healthy current ratio of 3.97 and operates with moderate debt, 10 analysts have recently revised their earnings downward.
InvestingPro's analysis suggests FSLY is currently undervalued, though investors should note the company's challenges with profitability. MANH's early targets for 2025 are believed to be in line with the company's approach in 2024, incorporating more cloud conversions and less service upside.
FIVN and TWLO have also provided soft guidance. FIVN's guidance of 13% growth accounts for less than $10 million in new business, despite significant wins and an expected Net Revenue Retention (NRR) of approximately 107%. TWLO's soft guidance of 7-8% suggests a 20% reduction in new business, with NRRs remaining stable for CPaaS and Segment.
For companies with off-fiscal years, such as CSCO and NTNX, the setups are slightly positive. ZM's exit rate from CY24, around 3%, is seen as a good proxy for CY25, although a detailed product analysis hints at limited growth potential. BAND is projected to have minimal growth in 2025, but its estimates have been adjusted to reflect political factors and fees, leading to an expectation of an inline guide.
Piper Sandler recommends caution with stocks like NICE, RNG, AKAM, NET, and PSTG, which have concerning setups heading into the new year. The firm advises investors to approach these names cautiously as they release their financial results.
For deeper insights into these companies and others in the sector, InvestingPro offers comprehensive analysis through Pro Research Reports, covering 1,400+ US equities with detailed financial metrics, Fair Value assessments, and expert analysis to help investors make informed decisions.
In other recent news, Fastly (NYSE:FSLY) has been making significant strides in its operations. The company has been lauded for its progress in refinancing and platform unification, as noted by Piper Sandler, which has raised Fastly's stock target to $10. Furthermore, Oppenheimer upgraded Fastly from Perform to Outperform, setting a new price target of $12. This positive outlook is based on the potential revenue gain from the bankruptcy of its former competitor, Edgio.
Fastly's revenue growth has been noteworthy, with a 10.94% increase in the last twelve months. This growth is supported by strategic shifts and operational improvements, including the introduction of new sales leadership. Despite a slowdown in growth and previous unmet expectations, analysts maintain a neutral stance on Fastly's stock, acknowledging the potential upside from its recent developments.
Fastly has also announced its third-quarter earnings for 2024, with CEO Todd Nightingale and CFO Ron Kisling expressing optimism about the company's strategy and long-term growth. They indicated confidence in Fastly's product sales and future prospects. The company's offerings in edge compute and security products, driven by emerging artificial intelligence applications, are predicted to contribute to its market growth and performance.
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