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Friday’s trading session saw Goldman Sachs analysts providing insights into the emerging software sector, focusing on companies with resilient growth and margin expansion potential. Despite a broad market downturn, with the median stock in Goldman’s small to mid-cap (SMID) software coverage falling approximately 18% year-to-date compared to a roughly 3% decline in the S&P 500, the firm sees tactical opportunities within the sector.
Goldman Sachs analysts revisited quarterly performance and highlighted key trends, noting a "trough-on-trough" narrative for several companies under coverage, including BlackLine (NASDAQ:BL), Olo (NYSE:OLO), Vertex (NASDAQ:VRTX) (NASDAQ:VERX), Workiva (NYSE:WK), and Smart WFM (ASX:SMWB). These companies have reportedly increased growth investments ahead of an anticipated stronger second half of the year, despite facing headwinds such as deal softness, challenging comparisons, and foreign exchange (F/X) impacts in the first quarter. For Smart WFM specifically, InvestingPro analysis reveals the company maintains a 14.63% revenue growth rate and currently shows signs of being undervalued based on its Fair Value assessment. Subscribers to InvestingPro can access 8 additional key insights about SMWB and detailed financial analysis in the comprehensive Pro Research Report.
The analysts pointed out that the negative stock reactions could be attributed to tangible guidance metrics, like soft first-quarter revenue guidance and unexpected negative F/X surprises, as well as slowing margin improvements. These factors have led to disappointment in high-visibility indicators such as near-term expense growth and next three months revenue, while lower visibility indicators like full-year revenue growth appeared more constructive.
Goldman Sachs identified opportunities in companies where they have the most conviction in the execution of acceleration and margin expansion from first-half troughs. The firm believes that valuations have become more compelling, with broad-based uncertainty increasingly priced into these names.
The analysts outlined quantitative dynamics in more detail by sub-sector and provided sentiment updates for their stocks. Among their key Buy-rated ideas fitting these themes are Vertex, Workiva, Olo, and Smart WFM. These companies are considered to have strong potential for growth and margin stories, making them attractive picks in the current market environment. Supporting this outlook, InvestingPro data shows analyst targets for SMWB ranging from $13 to $18, with the stock currently trading near $8.59. The company’s Financial Health Score of 2.37 (FAIR) and RSI indicators suggest the stock may be oversold, presenting a potential opportunity for investors seeking value in the software sector.
In other recent news, Similarweb (NYSE:SMWB) Ltd. reported its fourth-quarter earnings, which missed analyst expectations, contributing to a decline in its stock. The company posted adjusted earnings per share of $0.03, falling short of the $0.04 consensus. However, revenue for the quarter was slightly above expectations, coming in at $65.6 million compared to the anticipated $65.48 million, marking a 16% increase year-over-year. Despite this, the company’s guidance for the first quarter of 2025 was weaker than expected, forecasting revenue between $66 million and $66.5 million, below the $67.321 million consensus.
Additionally, Similarweb anticipates a non-GAAP operating loss of $1 million to $1.5 million for the upcoming quarter. The company’s full-year 2025 revenue guidance aligns with analyst expectations, projecting $285 million to $288 million, indicating approximately 15% growth at the midpoint. In other developments, Barclays (LON:BARC) analyst Raimo Lenschow reaffirmed an Overweight rating on Similarweb with a price target of $15. This comes after the company announced a price increase for its Web Intelligence and Sales Intelligence Business plans, by 17% and 14% respectively.
Barclays noted that 49% of Similarweb’s Annual Recurring Revenue is tied to multi-year contracts, suggesting the impact of these price changes will be gradual. The reaffirmation of the Overweight rating reflects Barclays’ ongoing confidence in Similarweb’s performance, despite the recent earnings miss and guidance. Investors will be monitoring how these pricing adjustments and financial forecasts affect the company in the coming months.
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