Early Friday, it seemed as though Wall Street had gotten exactly what it wanted, with an employment report that signaled solid job growth without signs of an overheating economy. Yet even though the Dow Jones Industrial Average (^DJI -0.16%), S&P 500 (^GSPC -0.38%), and Nasdaq Composite (^IXIC -0.13%) all headed higher in the morning, they lost ground near the close, and all finished the day lower by more than 1%.

Index

Daily Percentage Change

Daily Point Change

Dow

(1.07%)

(338)

S&P 500

(1.07%)

(43)

Nasdaq

(1.31%)

(154)

Data source: Yahoo! Finance.

Software stocks have been extremely volatile in 2022, and they've tended to lead the market lower on down days. But on Friday, a couple of stocks in that industry bucked the downtrend and finished sharply higher. Below, you'll learn more about why nCino (NCNO 0.13%) and Smartsheet (SMAR 0.05%) did so well and what their prospects look like.

Investors bank on nCino

Shares of nCino finished Friday nearly 10% higher. The cloud banking and digital transformation services provider for the financial services industry announced strong results for its fiscal 2023 second quarter, which ended July 31.

nCino's pace of growth was impressive. Revenue rose 50%, approaching the $100 million mark on a 57% rise in subscription-based sales. Although a significant portion of its top-line gains came from its recent acquisition of SimpleNexus, nCino was still able to produce organic subscription revenue growth of 29% year over year. Losses were roughly consistent with year-earlier levels, as nCino reported $0.04 per share in red ink on an adjusted basis during the fiscal quarter.

The company has made significant progress on the business side. Deals with Rabobank and ASB expanded nCino's exposure to markets in Australia and New Zealand, while other efforts added businesses in Japan, South Africa, and the Netherlands to its already impressive list of international clients. Cross-selling efforts from SimpleNexus customers also did well.

Best of all, nCino now expects its full fiscal 2023 revenue to top $400 million, with adjusted net losses per share likely to land in the range of $0.17 to $0.19. That signals ongoing progress toward profitability, and the prospects for further growth are exactly what software stock investors want to see.

A smart play

Smartsheet shares performed even better, rising almost 11% on Friday. The provider of workflow management software reported a loss for its fiscal 2023 second quarter, but investors were pleased to see positive free cash flow and continued top-line growth.

Smartsheet's revenue growth satisfied investors, with total sales rising 42% to $187 million on a 43% rise in subscription-based revenue. However, its adjusted net losses more than doubled year over year to $13.5 million, working out to $0.10 per share. Yet shareholders seemed to focus more on Smartsheet's more encouraging cash flow numbers, which included a reversal of year-ago outflows. This time, it reported positive free cash flow of $7.1 million.

Key metrics also looked attractive for Smartsheet. Its dollar-based net retention rate came in at 131%, indicating that current customers are expanding their use of the software platform consistently. It saw big jumps in the number of customers spending considerable amounts on the platform, including a 63% rise in those paying $100,000 annually to 1,220 clients. More than 2,700 users spent at least $50,000 on the platform, up 48% year over year.

Smartsheet expects to keep up its momentum, guiding for full fiscal 2023 sales of $750 million to $755 million, representing growth of 36% to 37%. Adjusted losses will likely be in the range of $0.49 per share to $0.56 per share, but management hopes to have break-even free cash flow. Despite some lower guidance on billings figures, investors have high hopes for Smartsheet's long-term prospects.