What Happened?
A number of stocks fell in the afternoon session after Confluent's disappointing quarterly results signaled growing headwinds in the space.
The data-streaming company missed revenue forecasts, citing significant challenges including customers optimizing their cloud spending and a slowdown in new projects. The situation was worsened by news that a large AI-native client is shifting to self-management, which is expected to impact future growth. Consequently, Stifel downgraded Confluent's stock from "Buy" to "Hold." The negative sentiment appeared to spill over to peers like cloud monitoring firm Datadog, which also saw its shares decline.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Cloud Monitoring company Datadog (NASDAQ: DDOG) fell 5.9%. Is now the time to buy Datadog? Access our full analysis report here, it’s free.
- Network Security company Palo Alto Networks (NASDAQ: PANW) fell 4.8%. Is now the time to buy Palo Alto Networks? Access our full analysis report here, it’s free.
- Marketing Software company Sprout Social (NASDAQ: SPT) fell 5.9%. Is now the time to buy Sprout Social? Access our full analysis report here, it’s free.
- Project Management Software company Monday.com (NASDAQ: MNDY) fell 4.5%. Is now the time to buy Monday.com? Access our full analysis report here, it’s free.
- Marketing Software company Braze (NASDAQ: BRZE) fell 3.1%. Is now the time to buy Braze? Access our full analysis report here, it’s free.
Zooming In On Sprout Social (SPT)
Sprout Social’s shares are very volatile and have had 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock dropped 16.5% on the news that the company reported weak third-quarter earnings. Its EPS and revenue guidance for next quarter missed Wall Street's estimates. Notably, remaining performance obligations (RPO - leading revenue indicator) fell below consensus estimates during the quarter, raising concerns about sales heading into the last quarter of the year. Overall, this quarter could have been better.
Sprout Social is down 43% since the beginning of the year, and at $17.50 per share, it is trading 55.2% below its 52-week high of $39.07 from July 2024. Investors who bought $1,000 worth of Sprout Social’s shares 5 years ago would now be looking at an investment worth $605.75.
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