QTWO) versus the rest of the vertical software stocks

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

Software is eating the world, and while a wide range of solutions, such as project management or videoconferencing software, can be useful for a wide range of industries, some have very specific needs. As a result, the software vertical, which addresses industry-specific workflows, is growing, fueled by pressure to improve productivity, whether in a life sciences, education or banking company.

The fifteen vertical software stocks we track reported a mixed second quarter. As a group, revenues exceeded analyst consensus expectations by 1.9%, while revenue expectations for the next quarter were 1.1% above.

Inflation has recently risen toward the Fed’s 2% target, prompting the Fed to cut its policy rate by 50 basis points (half a percent or 0.5%) in September 2024. This is the first reduction in four years. While the CPI (inflation) numbers have been supportive lately, the employment measures have turned out to be almost worrisome. Markets will debate whether the timing of this rate cut (and more potential ones in 2024 and 2025) is ideal to support the economy, or whether it is a bit too late for a macro that has already cooled too much.

Fortunately, vertical software stocks have performed well, with share prices up an average of 11% since the last earnings results.

Second Quarter Investments (NYSE:QTWO)

Founded in 2004 by Hank Seale, Q2 (NYSE:QTWO) provides software-as-a-service that enables small banks to offer online banking and consumer lending to their customers.

Holdings reported second-quarter revenue of $172.9 million, up 11.8% year over year. This print exceeded analyst expectations by 1.1%. Overall, it was a strong quarter for the company, with an impressive gain in analyst expectations and a narrow gain in ARR (annual recurring revenue) estimates.

“We ended the first half of the year with solid sales execution and financial results,” said Matt Flake, chairman and CEO of the second quarter.

Interestingly, the stock is up 15.3% since reporting and is currently trading at $77.83.

Is Now the Time to Buy Q2 Holdings? See our full analysis of earnings results here. It’s free.

Best Second Quarter: Olo (NYSE:OLO)

Olo (NYSE:OLO), founded by Noah Glass, who wanted to grab a quick cup of coffee on the way to work, provides restaurants and food retailers with software to manage food orders and deliveries.

Olo reported revenue of $70.5 million, up 27.6% year over year, and beat analyst expectations by 4.1%. The company had a very strong quarter with an impressive increase in analysts’ GMV (gross merchandise value) estimates and a solid increase in analyst expectations.

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Olo scored the fastest revenue growth and the highest full-year guidance increase among its peers. The market seems pleased with the results, as the stock is up 2.1% since reporting. It is currently trading at $4.89.

Is this the time to buy Olo? See our full analysis of earnings results here. It’s free.

Weakest Quarter 2: PTC (NASDAQ:PTC)

PTC’s (NASDAQ:PTC) software-as-service platform, used in the design of the Airbus A380 and Boeing 787 Dreamliner commercial aircraft, helps engineers and designers create and test products before they go into production.

PTC reported revenue of $518.6 million, down 4.4% year over year, falling 2.8% short of analyst expectations. It was a weaker quarter as analyst expectations were not met and gross margin fell.

PTC delivered the weakest performance against analyst estimates and the weakest full-year forecast update in the group. As expected, the stock is down 1.9% since the results and is currently trading at $174.31.

Read our full analysis of PTC’s results here.

Cadence (NASDAQ:CDNS)

With the name chosen to capture the idea of ​​a repeating pattern or rhythm in electronic design, Cadence Design Systems (NASDAQ:CDNS) offers a software-as-a-service platform for semiconductor engineering and design.

Cadence reported revenue of $1.06 billion, up 8.6% year over year. This print exceeded analyst expectations by 1.7%. More broadly, it was a mixed quarter as it also delivered a solid improvement in analyst expectations but a decline in gross margin.

The stock is down 8.5% since reporting and is currently trading at $262.80.

Read our full, actionable report on Cadence here. It’s free.

Doximity (NYSE:DOCS)

Founded in 2010 and named after a combination of “docs” and “proximity,” Doximity (NYSE: DOCS) is the leading social network for U.S. medical professionals.

Doximity reported revenue of $126.7 million, up 16.8% year over year. This print exceeded analyst expectations by 5.7%. Apart from that, it was a mixed quarter as optimistic revenue expectations for the next quarter were also recorded, but analyst expectations were missed.

The stock is up 67.8% since reporting and is currently trading at $43.07.

Read our full, actionable report on Doximity here. It’s free.

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