By Senad Karaahmetovic
KeyBanc analysts made several rating changes in the broker’s research coverage of enterprise software stocks. The firm expects to see a “meaningful slowdown of software spending growth in 2023.”
As a result, analysts told investors to get more selective as it is still uncertain when reacceleration will take place.
“During the last 2 quarters, slowing has spread even to cloud, potentially impacting a range of "cloud enablers" in observability, data, and devops; and to security as well, if less than IT overall and with consolidators benefiting. While software multiples are now at or below pre-COVID 10-year average levels, we expect continued downward 2023E revenue revisions this earnings season, if in many cases offset by upward revisions to margins,” they said in a note.
Along these lines, the analysts downgraded Datadog (NASDAQ:DDOG) to Sector Weight from Overweight, citing high multiple and increasing risks.
“DDOG has been among our "high quality" growth stories as a pure SaaS leader in the critical IT observability market, an agile organic and inorganic innovator both advancing its core capabilities and adding adjacencies like security as technology had advanced and the market has broadened, and an impressive financial performer at a "rule of >50" in 2023 (consensus 33% revenue growth, 21% FCF margin),” they explained.
On the other hand, Splunk Inc (NASDAQ:SPLK) has seen its stock upgraded to Overweight from Sector Weight with a $130 per share price target. The upgrade comes after Splunk announced job cuts last week.
“We do feel better about stabilizing and more streamlined management structure under new CEO Gary Steele, a smooth transition to multi-tenant cloud evidenced by improved cloud gross margins, and progress on building more customer-friendly workload pricing,” the analysts noted.
KeyBanc’s top enterprise software stocks include GitLab (NASDAQ:GTLB), MongoDB (NASDAQ:MDB), and Sprout Social (NASDAQ:SPT).