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Workday, Splunk Lead Nasdaq Gainers as Investors Expect Strong SaaS Earnings

By Dan Caplinger – Aug 26, 2020 at 12:49PM

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The software-as-a-service model has helped companies generate fast growth.

Investors have been excited about the Nasdaq Composite (^IXIC -0.25%) all year, and it has continued to press upward to new heights. Even as the coronavirus pandemic has put pressure on most companies, many of the tech innovators that make up much of the Nasdaq have been able to find solutions that customers have jumped on in order to make it through the crisis. That helped push the Nasdaq up more than half a percent on Wednesday morning as of 10:30 a.m. EDT, putting the index on track to set its fifth straight record high.

One thing that the coronavirus crisis has demonstrated is that companies that follow the software-as-a-service (SaaS) model to generate recurring revenue have generally fared quite well. Today, investors are concentrating on Workday (WDAY 0.28%) and Splunk (SPLK 1.73%), both of which are releasing their latest quarterly results this week. Given their past success, expectations are high, but the two companies have found ways to surpass high bars before.

Working for you

Workday's stock surged higher by 8% on Wednesday morning. The company is set to issue its latest earnings release on Thursday.

Person at desk with arms raised high and big smile, with whiteboard behind.

Image source: Getty Images.

Workday's emphasis on personnel management and enterprise financial software has been especially important lately, as businesses have had to automate processes in an effort to keep their workforces integrated even while working remotely. That trend has applied to many tech companies during the pandemic, but Workday has gotten a particularly sizable boost.

Offsetting some of those gains, though, is the fact that soaring unemployment has put many companies into a position where they no longer need Workday's services. Even so, investors saw that tug-of-war play out favorably in Workday's first-quarter financial results, with sales jumping 23% on a 26% rise in subscription revenue.

Workday shareholders are hoping to see continued strength in the second quarter, anticipating a 50% rise in adjusted earnings per share and ongoing sales gains. If the company can do even better, then further gains in the share price could be right around the corner.

Splunk surges

Splunk's shares also found an updraft Wednesday morning, rising 6%. It's set to reveal its latest results after the market closes this afternoon.

Data analytics have also become more important in the coronavirus world, and so it's not surprising to see Splunk having done well in 2020. The company's first-quarter results continued their impressive ascent, with annual recurring revenue jumping 52% year over year on a stunning 81% rise in cloud-related sales. Total top-line growth was muted, but that was largely due to Splunk's ongoing transition away from one-time licensing revenue toward recurring sources.

Investors will be watching this quarter to see what impact the company's new partnership with Alphabet (GOOGL -0.21%) (GOOG -0.19%) may have on sales. Splunk has been optimistic about its revenue growth.

Tech stocks tend to make big moves around earnings time, and bullish investors hope that Splunk and Workday will be able to keep climbing. If their businesses keep overcoming big challenges, that's not too much for shareholders to expect.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dan Caplinger owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Splunk, and Workday. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Workday Stock Quote
$159.45 (0.28%) $0.45
Splunk Stock Quote
$83.31 (1.73%) $1.42
Alphabet (A shares) Stock Quote
Alphabet (A shares)
$101.43 (-0.21%) $0.21
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,148.64 (-0.25%) $-27.77
Alphabet (C shares) Stock Quote
Alphabet (C shares)
$102.22 (-0.19%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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