Wrapping up Q2 earnings, we look at the numbers and key takeaways for the vertical software stocks, including Toast (NYSE:TOST) 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 15 vertical software stocks we track reported a mixed Q2. As a group, revenues beat analysts’ consensus estimates by 1.9% while next quarter’s revenue guidance was 1.1% above.
Big picture, the Federal Reserve has a dual mandate of inflation and employment. The former had been running hot throughout 2021 and 2022 but cooled towards the central bank's 2% target as of late. This prompted the Fed to cut its policy rate by 50bps (half a percent) in September 2024. Given recent employment data that suggests the US economy could be wobbling, the markets will be assessing whether this rate and future cuts (the Fed signaled more to come in 2024 and 2025) are the right moves at the right time or whether they're too little, too late for a macro that has already cooled.
Luckily, vertical software stocks have performed well with share prices up 20% on average since the latest earnings results.
Toast (NYSE:TOST)
Founded by three MIT engineers at a local Cambridge bar, Toast (NYSE:TOST) provides integrated point-of-sale (POS) hardware, software, and payments solutions for restaurants.Toast reported revenues of $1.24 billion, up 27% year on year. This print exceeded analysts’ expectations by 1.7%. Overall, it was a satisfactory quarter for the company with a decent beat of analysts’ billings estimates but a decline in its gross margin.
Interestingly, the stock is up 22.1% since reporting and currently trades at $29.50.
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Best Q2: Olo (NYSE:OLO)
Founded by Noah Glass, who wanted to get a cup of coffee faster on his way to work, Olo (NYSE:OLO) provides restaurants and food retailers with software to manage food orders and delivery.Olo reported revenues of $70.5 million, up 27.6% year on year, outperforming analysts’ expectations by 4.1%. The business had a very strong quarter with full-year revenue guidance exceeding analysts’ expectations and an impressive beat of analysts’ GMV (gross merchandise value) estimates.
Olo delivered the fastest revenue growth among its peers. The market seems happy with the results as the stock is up 5.6% since reporting. It currently trades at $5.06.
Slowest Q2: Unity (NYSE:U)
Started as a game studio by three friends in a Copenhagen apartment, Unity (NYSE:U) is a software as a service platform that makes it easier to develop and monetize new games and other visual digital experiences.Unity reported revenues of $449.3 million, down 15.8% year on year, exceeding analysts’ expectations by 1.7%. Still, it was a slower quarter as it posted a miss of analysts’ billings estimates.
Unity delivered the slowest revenue growth in the group. Interestingly, the stock is up 49% since the results and currently trades at $21.39.
Veeva Systems (NYSE:NYSE:VEEV)
Built on top of Salesforce as one of the first vertical-focused cloud platforms, Veeva (NYSE:VEEV) provides data and customer relationship management (CRM) software for organizations in the life sciences industry.Veeva Systems reported revenues of $676.2 million, up 14.6% year on year. This number beat analysts’ expectations by 1.2%. It was a strong quarter as it also recorded full-year revenue guidance exceeding analysts’ expectations and a meaningful improvement in its gross margin.
The stock is up 8.8% since reporting and currently trades at $217.02.
Agilysys (NASDAQ:AGYS)
Originally a subsidiary of Pioneer-Standard Electronics that distributed electronic components, Agilysys (NASDAQ:AGYS) offers a software-as-service platform that helps hotels, resorts, restaurants, and other hospitality businesses manage their operations and workflows.Agilysys reported revenues of $63.51 million, up 13.3% year on year. This number lagged analysts' expectations by 1.4%. Overall, it was a mixed quarter for the company.
Agilysys had the weakest full-year guidance update among its peers. The stock is up 11.9% since reporting and currently trades at $125.19.
This content was originally published on Stock Story
