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Tech Stocks This Week: 2 Cloud Stocks Are Crushing It

By Daniel Sparks – Dec 1, 2018 at 10:11AM

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If there's weakness in the economy, Salesforce and Workday certainly haven't been impacted by it.

In a change of pace following a market downturn that lasted nearly two months, the S&P 500 gained about 5% this week. Tech stocks saw an even better rebound, as evidenced by the tech-heavy Nasdaq Composite's 5.6% rise over the same time frame. Of course, tech stocks were slammed harder than the overall market leading up to this upbeat week. Between Oct. 1 and Nov. 23, the Nasdaq Composite had declined nearly 14% while the S&P 500 fell just 10%.

Amid this week's rebound in tech stocks, two stocks from the hot software-as-a-service cloud sector helped set the tone. (CRM 1.32%) and Workday (WDAY 4.37%) both saw their stocks soar this week, rising 17% and 22%, respectively. Both of these stocks' gains were helped by better-than-expected third-quarter financial results.

A diagram showing three laptops connected to a cloud

Image source: Getty Images.

Here's a look at each of these companies' latest financial results -- and why investors love them.


Customer relationship management platform company Salesforce beat expectations in its third quarter of fiscal 2019 with revenue of $3.39 billion and adjusted earnings per share of $0.61. On average, analysts were expecting revenue of $3.37 billion and adjusted earnings per share of $0.50. 

Impressively, Salesforce's revenue was up 26% year over year. Subscription and support revenue, which accounts for 93% of the company's total revenue, was up 26% year over year. The remaining revenue, from professional services, was up 15% compared to the year-ago quarter.

Of the different cloud platforms that contribute to Salesforce's subscription and support revenue, the sales cloud is the biggest. Sales cloud revenue climbed 11% year over year to $1.02 billion. The service cloud segment saw revenue rise 24% year over year; the segment including the Salesforce platform and other cloud revenue grew 51%; and marketing and commerce cloud revenue increased 37%. But Salesforce's platform and other cloud segment was notably helped by over $100 million of revenue from the company's recent acquisition of Mulesoft.

While Salesforce's stronger-than-expected growth was likely the primary reason for the Street's optimistic response to the company's third-quarter results, management's decision to raise its outlook for full-year revenue probably played a part as well. The company now expects full-year fiscal 2019 revenue to rise about 26% year over year. Previously, management had guided for 25% growth.


Salesforce may have beat expectations. But Workday crushed expectations. In the third quarter of fiscal 2019, the company's revenue rose 34% year over year to $743 million. Not only was this an acceleration from the 28% revenue growth in Q2, but revenue was far ahead of a consensus analyst estimate of $723 million. Similarly, non-GAAP earnings per share jumped from $0.24 in the year-ago quarter to $0.31 -- easily beating a consensus forecast for $0.14.

"We're pleased with our strong performance in Q3, which resulted in accelerated growth across our core business metrics and gives us great momentum heading into year-end," said Workday CFO Robynne Sisco in the company's third-quarter earnings release.

While Workday's core human capital management suite of applications saw strong growth during the quarter, its financial management apps and business intelligence platform saw outsize growth.

Workday's big outperformance on its top and bottom lines, combined with the fact that revenue growth accelerated significantly compared to Q2, gives investors reason to be more confident in the company's growth story.

Both companies' results show that businesses are as aggressive as ever in their efforts to become more efficient digitally.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends and Workday. The Motley Fool has a disclosure policy.

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