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4 Software Stocks Likely to Beat Earnings Estimates This Season
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Software is ubiquitous and has become the focal point of technological innovation. Software stocks have been benefiting from accelerated demand for digital transformation and the ongoing shift to the cloud. However, weakened consumer spending amid ongoing macroeconomic headwinds is hurting industry participants. Enterprises are postponing their large IT spending plans due to a weakening global economy amid inflationary pressure, still-high interest rates and unfavorable forex. These do not bode well for industry participants this earnings season.
Nonetheless, the growing proliferation of software-as-a-service or SaaS-based services, the rapid migration to cloud platforms, the increasing demand for solutions that support a hybrid/flexible work model and the rising user penetration of online payment solutions are likely to have remained major tailwinds for software companies like Affirm Holdings (AFRM - Free Report) , Block (XYZ - Free Report) , BILL Holdings (BILL - Free Report) and Atlassian (TEAM - Free Report) .
Factors That Favor Software Stocks
The spike in the adoption of cloud-based services, the increasing proliferation of IoT and AR/VR devices and the accelerated deployment of 5G are expected to have aided the performance of software stocks this earnings season.
Strong momentum across enterprise collaboration software, remote desktop tools, natural language processing and time tracking tools is expected to have hugely favored the software industry this earnings season.
Rising cyberattacks, including Distributed Denial of Service attacks and attacks using malware through Transport Layer Security and Secure Sockets Layer protocols, are redefining the cyber threat landscape. Enterprises are spending more on cloud-based security solutions. Moreover, the software-defined approach is increasingly getting preferred over legacy hardware-centric models due to the need for agility.
The increasing customer-centric approach is allowing end-users to perform all required actions with minimal intervention from software providers. The pay-as-you-go model helps Internet Software providers scale their offerings per the needs of different users. The subscription-based business model ensures recurring revenues for the industry participants. The affordability of the SaaS delivery model, particularly for small and medium-sized businesses, is another major driver.
Additionally, the growing proliferation of artificial intelligence (AI)-powered voice recognition, telemedicine, learning management, infrastructure monitoring and business spend management software is expected to have benefited industry players in the quarter under review. Enterprise workspace solutions, enterprise communication platforms and online education portals are likely to have continued contributing as well.
How to Make the Right Choice?
With the presence of several industry participants, finding the right tech stocks with the potential to beat on earnings can be daunting. However, our proprietary methodology makes this task fairly simple.
You could narrow down your choices by looking at stocks that have the perfect combination of two key elements — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
Earnings ESP is our proprietary methodology for determining stocks that have maximum chances of beating estimates in their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Our research shows that for stocks with this favorable mix of ingredients, the odds of a positive earnings surprise are as high as 70%.
Best Bets
Affirm Holdings is slated to report third-quarter fiscal 2025 results on May 8. The company currently sports a Zacks Rank #1 and has an Earnings ESP of +63.27%. The Zacks Consensus Estimate for third-quarter revenues is pegged at $783.1 million, indicating year-over-year growth of 35.9%. The consensus mark for the bottom line stands at a loss of 8 cents per share, suggesting a strong improvement from the year-ago quarter’s loss of 43 cents. You can see the complete list of today’s Zacks #1 Rank stocks here.
Affirm has achieved strong revenue growth in past quarters through diverse income streams, including merchant network fees, interest from loans and virtual card revenues. Growing active merchant numbers, improving gross merchandise value (GMV) and average balance of loans are driving merchant network revenues and interest income.
Key partnerships, like those with Apple Pay and Hotels.com, play a vital role in its expansion. It has officially expanded to the United Kingdom through a partnership with Alternative Airlines. Tapping into industries like travel, hospitality, and technology bodes well.
Block is scheduled to report first-quarter 2025 results on May 1. The company currently has an Earnings ESP of +7.52% and a Zacks Rank #3. The Zacks Consensus Estimate for revenues and earnings is pegged at $6.18 billion and 88 cents per share, respectively. The consensus mark for the first-quarter top and bottom lines implies a year-over-year improvement of 3.8% and 3.5%, respectively.
Block is benefiting from strong Cash App engagement and an expanding customer base. Strength across the Cash App ecosystem on the back of Cash App Card and Cash App Borrow is contributing well. The robust performance of the company’s ‘buy now, pay later’ (BNPL) platform remained positive. Strong growth in subscription and bitcoin revenues is driving overall financial growth.
BILL Holdings is scheduled to report third-quarter fiscal 2025 results on May 8. The company carries a Zacks Rank #3 and has an Earnings ESP of +0.30%. The Zacks Consensus Estimate for third-quarter revenues is pegged at $354.8 million, which calls for a year-over-year increase of 9.8%. The consensus mark for earnings stands at 37 cents per share, indicating a decline of 38.3% from the year-ago quarter’s earnings of 60 cents.
BILL is benefiting from an expanding small and medium businesses (SMBs) clientele and a diversified business model. BILL is leveraging AI to make its solutions easier to use, more automated and predictive. It is also working on integrating generative AI into its solutions to enhance customer experience.
The company emphasized its leadership in automating financial operations for SMBs with innovations like embedded 1099 functionality and advanced payment solutions. BILL’s strong balance sheet and free cash flow-generating ability remain noteworthy.
Atlassian is slated to report third-quarter fiscal 2025 results on May 1. It currently carries a Zacks Rank #3 and has an Earnings ESP of +0.93%. The Zacks Consensus Estimate for revenues is pegged at $1.35 million, while the same for the bottom line stands at earnings of 90 cents per share. In the year-ago quarter, the company generated $1.19 billion of revenues and reported 89 cents in earnings.
Atlassian is benefiting from the rising demand for remote working tools amid the hybrid work trend and accelerated digital transformation. An improvement in product quality and performance, multiple product launches, transparent pricing and a unique sales strategy are upsides.
The expansion of its product portfolio through acquisitions is expected to fuel its growth momentum. Atlassian’s focus on adding generative AI features to some of its collaboration software is likely to drive the top line.
Image: Bigstock
4 Software Stocks Likely to Beat Earnings Estimates This Season
Software is ubiquitous and has become the focal point of technological innovation. Software stocks have been benefiting from accelerated demand for digital transformation and the ongoing shift to the cloud. However, weakened consumer spending amid ongoing macroeconomic headwinds is hurting industry participants. Enterprises are postponing their large IT spending plans due to a weakening global economy amid inflationary pressure, still-high interest rates and unfavorable forex. These do not bode well for industry participants this earnings season.
Nonetheless, the growing proliferation of software-as-a-service or SaaS-based services, the rapid migration to cloud platforms, the increasing demand for solutions that support a hybrid/flexible work model and the rising user penetration of online payment solutions are likely to have remained major tailwinds for software companies like Affirm Holdings (AFRM - Free Report) , Block (XYZ - Free Report) , BILL Holdings (BILL - Free Report) and Atlassian (TEAM - Free Report) .
Factors That Favor Software Stocks
The spike in the adoption of cloud-based services, the increasing proliferation of IoT and AR/VR devices and the accelerated deployment of 5G are expected to have aided the performance of software stocks this earnings season.
Strong momentum across enterprise collaboration software, remote desktop tools, natural language processing and time tracking tools is expected to have hugely favored the software industry this earnings season.
Rising cyberattacks, including Distributed Denial of Service attacks and attacks using malware through Transport Layer Security and Secure Sockets Layer protocols, are redefining the cyber threat landscape. Enterprises are spending more on cloud-based security solutions. Moreover, the software-defined approach is increasingly getting preferred over legacy hardware-centric models due to the need for agility.
The increasing customer-centric approach is allowing end-users to perform all required actions with minimal intervention from software providers. The pay-as-you-go model helps Internet Software providers scale their offerings per the needs of different users. The subscription-based business model ensures recurring revenues for the industry participants. The affordability of the SaaS delivery model, particularly for small and medium-sized businesses, is another major driver.
Additionally, the growing proliferation of artificial intelligence (AI)-powered voice recognition, telemedicine, learning management, infrastructure monitoring and business spend management software is expected to have benefited industry players in the quarter under review. Enterprise workspace solutions, enterprise communication platforms and online education portals are likely to have continued contributing as well.
How to Make the Right Choice?
With the presence of several industry participants, finding the right tech stocks with the potential to beat on earnings can be daunting. However, our proprietary methodology makes this task fairly simple.
You could narrow down your choices by looking at stocks that have the perfect combination of two key elements — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
Earnings ESP is our proprietary methodology for determining stocks that have maximum chances of beating estimates in their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Our research shows that for stocks with this favorable mix of ingredients, the odds of a positive earnings surprise are as high as 70%.
Best Bets
Affirm Holdings is slated to report third-quarter fiscal 2025 results on May 8. The company currently sports a Zacks Rank #1 and has an Earnings ESP of +63.27%. The Zacks Consensus Estimate for third-quarter revenues is pegged at $783.1 million, indicating year-over-year growth of 35.9%. The consensus mark for the bottom line stands at a loss of 8 cents per share, suggesting a strong improvement from the year-ago quarter’s loss of 43 cents. You can see the complete list of today’s Zacks #1 Rank stocks here.
Affirm has achieved strong revenue growth in past quarters through diverse income streams, including merchant network fees, interest from loans and virtual card revenues. Growing active merchant numbers, improving gross merchandise value (GMV) and average balance of loans are driving merchant network revenues and interest income.
Key partnerships, like those with Apple Pay and Hotels.com, play a vital role in its expansion. It has officially expanded to the United Kingdom through a partnership with Alternative Airlines. Tapping into industries like travel, hospitality, and technology bodes well.
Affirm Holdings, Inc. Price and EPS Surprise
Affirm Holdings, Inc. price-eps-surprise | Affirm Holdings, Inc. Quote
Block is scheduled to report first-quarter 2025 results on May 1. The company currently has an Earnings ESP of +7.52% and a Zacks Rank #3. The Zacks Consensus Estimate for revenues and earnings is pegged at $6.18 billion and 88 cents per share, respectively. The consensus mark for the first-quarter top and bottom lines implies a year-over-year improvement of 3.8% and 3.5%, respectively.
Block is benefiting from strong Cash App engagement and an expanding customer base. Strength across the Cash App ecosystem on the back of Cash App Card and Cash App Borrow is contributing well. The robust performance of the company’s ‘buy now, pay later’ (BNPL) platform remained positive. Strong growth in subscription and bitcoin revenues is driving overall financial growth.
Block, Inc. Price and EPS Surprise
Block, Inc. price-eps-surprise | Block, Inc. Quote
BILL Holdings is scheduled to report third-quarter fiscal 2025 results on May 8. The company carries a Zacks Rank #3 and has an Earnings ESP of +0.30%. The Zacks Consensus Estimate for third-quarter revenues is pegged at $354.8 million, which calls for a year-over-year increase of 9.8%. The consensus mark for earnings stands at 37 cents per share, indicating a decline of 38.3% from the year-ago quarter’s earnings of 60 cents.
BILL is benefiting from an expanding small and medium businesses (SMBs) clientele and a diversified business model. BILL is leveraging AI to make its solutions easier to use, more automated and predictive. It is also working on integrating generative AI into its solutions to enhance customer experience.
The company emphasized its leadership in automating financial operations for SMBs with innovations like embedded 1099 functionality and advanced payment solutions. BILL’s strong balance sheet and free cash flow-generating ability remain noteworthy.
BILL Holdings, Inc. Price and EPS Surprise
BILL Holdings, Inc. price-eps-surprise | BILL Holdings, Inc. Quote
Atlassian is slated to report third-quarter fiscal 2025 results on May 1. It currently carries a Zacks Rank #3 and has an Earnings ESP of +0.93%. The Zacks Consensus Estimate for revenues is pegged at $1.35 million, while the same for the bottom line stands at earnings of 90 cents per share. In the year-ago quarter, the company generated $1.19 billion of revenues and reported 89 cents in earnings.
Atlassian is benefiting from the rising demand for remote working tools amid the hybrid work trend and accelerated digital transformation. An improvement in product quality and performance, multiple product launches, transparent pricing and a unique sales strategy are upsides.
The expansion of its product portfolio through acquisitions is expected to fuel its growth momentum. Atlassian’s focus on adding generative AI features to some of its collaboration software is likely to drive the top line.
Atlassian Corporation PLC Price and EPS Surprise
Atlassian Corporation PLC price-eps-surprise | Atlassian Corporation PLC Quote