Enterprise software companies like Coursera, Five9, Teladoc Health and more will ‘turn impending macro downturn into guidance,’ analyst warns

Needham Analyst Scott Berg this week shared Q2 earnings for the launch of his Enterprise Software universe with seven companies reporting, namely, 2U, Inc. OF THEM (Buy; target price: $19), Coursera, Inc. COURT (Buy; TP: $32), Five9, Inc. IVNF (Buy; TP: $160), PROS Holdings, Inc. PRO (Buy; TP: $51), SPS Commerce, Inc. SPSC (Buy; PT: $150), Teladoc Health, Inc. TDOC (Buy; PT: $48) and Tyler Technologies, Inc. TYL (Buy; PT: $575).

Investor sentiment towards Berg’s universe has improved significantly over the past month, with investor appetite shifting from cyclical consumer names to growth themes like his universe.

Berg thought the 2Q tone would show bookings were generally strong overall, but expect cautious 2H guidance as companies turn the impending macro slowdown into forecasts.

After speaking with nearly 35 private companies over the past seven weeks, he believes second-quarter sales in his space were generally positive and in line with strong first-quarter billing activity.

He thinks suppliers with the most exposure to North America will show outperformance in bookings in the second quarter, while those with a larger European presence have been exposed to some lengthening of sales cycles.

He has answered many calls from investors asking if the Qualtrics International Inc. XM sales feedback will point to broader expectations for the 2T, but its 2T checks suggest a more favorable sales tone.

For FIVN, recent contact center work suggests demand for automation and cloud delivery has generated healthy demand.

For SPSC, he believes broader macroeconomic pressure from the supply chain has driven net new customer additions above historical levels.

For TYL, he expects tailwinds from ARPA and strong bookings in recent quarters to again lead to double-digit organic growth, versus a forecast of 9.5%.

Within Ed Tech, Q2 revenue starts with COUR and TWOU. Both companies gained market share based on web traffic in the last quarter, which bodes well for lead generation and the adoption of shorter-form credentials.

However, investors are still worried about the prospects for 2H22 of each company’s graduating activity, as labor market strength has yet to slow, despite growing tech layoffs.

In digital health, TDOC looked to bounce back from a problematic 1Q. Web trends suggest strong demand for mental health services, like BetterHelp. He saw the need for TDOC to address concerns about increased competition in several segments of its business, particularly in primary care, as Amazon.com Inc. AMZN shared plans to acquire One Medical.

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