Why Are Software Stocks Climbing Higher Today?

  • Software stocks Coupa Software (COUP) and GitLab (GTLB) rose after beating estimates.
  • Both remain down on the year, as does the software sector in general.
  • The industry is cutting its own costs and those of its customers.
software stocks - Why Are Software Stocks Climbing Higher Today?

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Some software stocks are rising in the down market, thanks to earnings that beat estimates. Among those in the winner circle are Coupa Software (NASDAQ:COUP) and GitLab (NASDAQ:GTLB). Both remain down on the year, however.

Coupa lost $70.6 million, or 99 cents per share, on revenue of $211 million for its most recent quarter. The loss was just half what was expected, and revenue for the year is 17% ahead of a year ago. GitLab reported a non-GAAP loss of $21.5 million, 15 cents per share, on revenue of $101 million. Revenue was 74% ahead of the same quarter last year.

Growth Holding Up

Coupa runs a spend management program, something that has enormous value in tough economic times. GitLab calls itself a DevOps platform, meaning it can help companies deliver software that cuts costs.

CitiGroup reacted to the Coupa results by raising its price target $5 per share, to $82. The stock opened Sept. 7 at $62.88.

GitLab, which competes with Microsoft’s (NASDAQ:MSFT) GitHub, is now worth almost as much as Microsoft paid for the open source software repository in 2018.

Both stocks are swimming against the current, with all the major software exchange-traded funds (ETFs) down on the year. COUP is still down 60% for all of 2022. GTLB is down 45%, which may be why COUP stock reacted better to positive earnings.

Even the largest, best-managed software companies are down for the year. Microsoft is down 24%, Oracle (NASDAQ:ORCL) is down 16% and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is down 26%. The whole sector is under pressure to cut its own costs even while cutting costs for customers.

What Happens Next for Software Stocks

Investors are still expecting a recession, and growth stocks are reacting accordingly.

But there are bargain hunters around, as the action in COUPA illustrates. Software is the best tool for cutting costs and beating inflation. If inflation can be beaten quickly, these stocks could jump back quickly. If it can’t, the industry’s own cost cuts should deliver profits in 2023.

On the date of publication, Dana Blankenhorn held a long position in MSFT and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.

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