As the Q4 earnings season comes to a close, it’s time to take stock of this quarter’s best and worst performers in the vertical software industry, including Q2 Holdings (NYSE:QTWO) and its peers.
Software is eating the world, and while a large number of solutions such as project management or video conferencing software can be useful to a wide array of industries, some have very specific needs. As a result, vertical software, which addresses industry-specific workflows, is growing and fueled by the pressures to improve productivity, whether it be for a life sciences, education, or banking company.
The 14 vertical software stocks we track reported a satisfactory Q4. As a group, revenues beat analysts’ consensus estimates by 3.3% while next quarter’s revenue guidance was in line.
Amidst this news, share prices of the companies have had a rough stretch. On average, they are down 18.1% since the latest earnings results.
Q2 Holdings (NYSE:QTWO)
Founded in 2004 by Hank Seale, Q2 (NYSE:QTWO) offers software-as-a-service that enables small banks to provide online banking and consumer lending services to their clients.
Q2 Holdings reported revenues of $183 million, up 12.9% year on year. This print exceeded analysts’ expectations by 1.7%. Overall, it was a very strong quarter for the company with EBITDA guidance for next quarter exceeding analysts’ expectations.
“We delivered strong fourth-quarter results to cap off a great year,” said Matt Flake, chairman and CEO, Q2.
Q2 Holdings Total Revenue
The stock is down 19.1% since reporting and currently trades at $74.51.
Founded by the former head of Google's enterprise business, Upstart (NASDAQ:UPST) is an AI-powered lending platform facilitating loans for banks and consumers.
Upstart reported revenues of $219 million, up 56.1% year on year, outperforming analysts’ expectations by 20.1%. The business had an exceptional quarter with EBITDA guidance for next quarter exceeding analysts’ expectations.
Upstart Total Revenue
Upstart delivered the biggest analyst estimates beat, fastest revenue growth, and highest full-year guidance raise among its peers. The stock is down 40.8% since reporting. It currently trades at $39.84.
Used to design the Airbus A380 and Boeing 787 Dreamliner commercial airplanes, PTC’s (NASDAQ:PTC) software-as-service platform helps engineers and designers create and test products before manufacturing.
PTC reported revenues of $565.1 million, up 2.7% year on year, exceeding analysts’ expectations by 1.9%. Still, it was a softer quarter as it posted full-year EPS guidance missing analysts’ expectations.
As expected, the stock is down 23.1% since the results and currently trades at $145.68.
Used to manage the multi-year expansion of the Panama Canal that began in 2007, Procore (NYSE:PCOR) offers a software-as-service project, finance, and quality management platform for the construction industry.
Procore reported revenues of $302 million, up 16.2% year on year. This number beat analysts’ expectations by 1.4%. Aside from that, it was a weaker quarter as it recorded full-year guidance of slowing revenue growth.
The company added 113 customers to reach a total of 17,088. The stock is down 20.1% since reporting and currently trades at $60.
With the name chosen to reflect 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 revenues of $1.36 billion, up 26.9% year on year. This result was in line with analysts’ expectations. More broadly, it was a mixed quarter as it also produced a solid beat of analysts’ billings estimates but full-year revenue guidance slightly missing analysts’ expectations.
The stock is down 13.7% since reporting and currently trades at $259.21.
In response to the Fed’s rate hikes in 2022 and 2023, inflation has been gradually trending down from its post-pandemic peak, trending closer to the Fed’s 2% target. Despite higher borrowing costs, the economy has avoided flashing recessionary signals. This is the much-desired soft landing that many investors hoped for. The recent rate cuts (0.5% in September and 0.25% in November 2024) have bolstered the stock market, making 2024 a strong year for equities. Donald Trump’s presidential win in November sparked additional market gains, sending indices to record highs in the days following his victory. However, debates continue over possible tariffs and corporate tax adjustments, raising questions about economic stability in 2025.
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