To The Moon

Two SaaS stocks, soaring before 2022 has plunged after their Q3 earnings after close on November 3.$Twilio(TWLO)$And$Cloudflare, Inc.(NET)$As luck would have it, Q3 outperformed market expectations, and there was only one reason for the plunge: a drop in guidance caused by weak demand.

TWLO fell even more after hours, reaching 20%, while its Q3 performance was not weak.

• Revenue was 983 million US dollars, a year-on-year increase of 33%, exceeding the market expectation of 908 million US dollars;
• There were 280,000 active customers, a year-on-year increase of 12%, which was basically the same as market expectations
• The net dollar retention rate was 122%, which was lower than the market expectation of 124%
• GAAP's EPS was-$2.63, lower than expected-$2.07.

For NET, the growth rate is still higher

• The overall revenue was US $253 million, a year-on-year increase of 47%, exceeding the market expectation of US $251 million
• There were 156,000 active customers, an increase of 18% year-on-year, which was basically the same as market expectations
• The net dollar retention rate was 124%, which was lower than the market expectation of 126%
• The adjusted EBITDA was US $22.13 million, up 15% year-on-year, lower than the market expectation of US $25.85 million.

The Q3 results of the two companies are almost identical, and both of them are

1. Revenue and active customer growth slowed down;
2. The retention rate remains high, but slightly lower than market expectations;
3. Profit levels are picking up, but slightly less than expected.

Among them, the retention rate is slightly lower than the market expectation, which is also an important reason for the two companies to lower their quarterly performance guidelines,

TWLO's Q4 revenue is expected to be between 995 million and 1.005 billion US dollars, while the market is expected to be 1.07 billion US dollars; The adjusted EPS is-0.06 to-0.11 USD, and the market expectation is-0.12 USD.

NET's Q4 revenue guide is 273-274 million US dollars, and the market expectation is 2.737 US dollars. The adjusted EPS is 0.04-0.05 US dollars, and the market expectation is 0.02 US dollars.

NET's performance is expected to be relatively stronger, so after-hours, it did not fall as much as TWLO.

Almost all companies in the cloud industry have failed this quarter, even those of large cloud service enterprises$Microsoft(MSFT)$And$Amazon.com(AMZN)$It has not been spared from the decline in growth rate, and$Alphabet(GOOG)$Although cloud still maintains a growth rate of more than 30% this quarter, the next expectation is not very ideal.

Many people may judge the current economic situation by fresh macro data, but many of these data are lagging behind.

On the contrary, the current situation of cloud service industry is an indicator ahead of the real economy, which represents the strength of service industry demand. Generally, in the expectation of economic recession, enterprises are more cautious about budget expenditure.

Investors need to continue to pay attention to the SaaS industry leaders who will announce their financial reports in the future$Snowflake(SNOW)$Financial report.