Wall Street has been on edge over the past couple of weeks about the prospects for the stock market, but investors seemed to take some solace coming into the trading day on Thursday. Even if the news from the Federal Reserve coming later this week turns out to be worse than some hope, it will nevertheless pin down expectations and eliminate some uncertainty about what the future might bring. That lifted stock indexes, and as of 8:45 a.m. ET, futures contracts on the Dow Jones Industrial Average (^DJI 0.36%) had risen 76 points to 33,034. S&P 500 (^GSPC 0.41%) futures had picked up 21 points to reach 4,163, and Nasdaq Composite (^IXIC 0.45%) futures had gained 80 points to hit 13,010.
Software-as-a-service (SaaS) stocks have gained in popularity, due largely to their massive run-ups during the bull market in 2020 and early 2021. Since then, though, their prospects have been less clear, and that has led to some big swings in their share prices. This morning, investors reacted to the latest news from Snowflake (SNOW 1.79%) and Salesforce (CRM 0.79%), and the moves in their stock prices show some of the ongoing challenges in predicting how these businesses will perform over the long run.
Snowflake heats up
On the upside, Snowflake led premarket gainers on Thursday morning, with its stock price shooting higher by about 20%. The company continued to do what investors want to see the most: boost its revenue at an impressive rate.
Snowflake's numbers gave shareholders added confidence. Revenue of $497 million was up 83% from year-ago levels, led by a similar rise in product sales. Remaining performance obligations under its current contracts jumped 78% year over year to $2.7 billion, and net revenue retention rates of 171% showed the existing customers continued to ramp up their spending on the data cloud company's platform.
Snowflake has brought on a rising number of customers, especially clients with big needs for its services. As of July 31, Snowflake counted more than 6,800 total clients, with 246 of them producing revenue of more than $1 million each.
Investors also liked the boost that Snowflake made to its guidance, which now calls for full-year fiscal 2023 sales to come in between $1.905 billion and $1.915 billion. That would represent annual growth of 67% to 68%, and even though Snowflake isn't yet profitable, positive free cash flow suggests the SaaS stock is on a trajectory to eliminate its losses in the not-too-distant future.
Salesforce takes a hit
Meanwhile, shares of Salesforce fell 8%. The move lower came despite what seemed like reasonably good results in the customer relationship management software specialist's most recent quarterly results.
Salesforce's sales growth was solid, albeit far short of what Snowflake produced. Revenue of $7.72 billion for the quarter ended July 31 was up 22% from where it was this time last year. Current remaining performance obligations of $21.5 billion climbed 15% year over year. Although adjusted earnings of $1.19 per share were down from year-ago levels, Salesforce nevertheless delivered more profit than most investors were expecting to see.
Yet investors seemed nonplussed by the guidance that Salesforce gave. In the fiscal third quarter, the company expects revenue growth of just 14%, weighing in at $7.82 billion to $7.83 billion. Full-year fiscal 2023 revenue of $30.9 billion to $31 billion would be about 17% higher than fiscal 2022's final numbers, with adjusted earnings of $4.71 to $4.73 per share.
Those numbers indicated sustained gains for Salesforce, but at a far slower pace than what smaller companies in the industry are producing. Thursday morning's share-price moves suggest that investors are still putting a premium on ultra-fast growth even despite the outsize hits those stocks have taken in the bear market.