As Q2 earnings season comes to a close, some clear winners and losers have emerged from each sector. Using our sentiment analysis technology, we've identified the industries and companies with the largest shift in sentiment quarter-over-quarter, as well as major themes that emerged during the second quarter.
In particular, the four industries below (Software, Social Media, Retail, and Airlines) were significantly impacted from COVID-19, particularly during Q2. New macrotrends like remote work, social distancing, e-commerce growth, and reduced travel have contributed to the growth or deceleration of companies within each of these industries.
Change is calculated by subtracting the current quarter’s sentiment by the previous quarter’s.
Note: This analysis includes only companies above $10 billion in market cap. The sentiment algorithm scores each statement in every earnings call transcript as positive, negative, or neutral, and generates a score on a -100 to 100 scale for the transcript. Below we showcase a sample of companies with the greatest positive and negative change in sentiment QoQ. This analysis does not factor in change in stock price or market cap, simply tonality.
- Cloud vendors are seeing increased and faster adoption of their cloud-computing platforms as the enterprise accelerates their digital transformation projects
- Software companies that specialize in replacing in-person business processes like tax compliance and accounting are benefiting from the wider adoption of e-commerce
- Retention rates and revenue deceleration are dragging some software vendors down that are seeing lower than normal sentiment scores
Open Text Corp
Sentiment Δ +48 [themes: Recurring Revenue, Growth, and Customers]
ARR (Annual Recurring Revenue) for Open Text Corp has expanded and taken on greater responsibility for the growth of OTEX. Since 2016, the company has focused on shifting from license to cloud and subscription revenues, which has also helped with margin expansion.
Open Text Corp earnings call quotes:
“Looking back from fiscal '11 through today, just looking back a little bit through today, ARR has expanded from 54% to 78% of total revenues. Cloud revenues have grown from 0 to $1.2 billion or 37% of total revenues; license mix is only 13% of our business today compared to near 30% in fiscal '11.”
“Total revenue of $3.1 billion, up 8% year-over-year. Record annual recurring revenue of $2.4 billion, up 13% year-over-year and now 78% of total revenues, 300 bps higher than fiscal '19. Cloud revenues of $1.2 billion, up 28% year-over-year with a 347 bps margin increase to 61%. Record Customer Support revenues of $1.3 billion, up 2% year-over-year, with a 25 bps margin increase to 90.4%. We also completed the year with record enterprise Customer Support renewal rate of 93.8%.”
“We had many notable customer wins in Q4 that included the National Institute of Allergy and Infectious Diseases, the NIAID or the NIH, which we announced today; Becton Dickinson; Rapid Radiology; the U.S. Defense Health Agency; Panasonic; Michelin, Merck, the Williams Companies and Amway.”
Sentiment Δ +49 [themes: Sales, Enterprise Deals, E-commerce]
Avalara’s cloud-based tax compliance software is having a moment. Two macro trends are driving this: small and enterprise businesses are seeking out software replacements for business processes that previously required in-person interactions, and e-commerce adoption is normalizing the adoption of all-online services.
Avalara earnings call quotes:
“Now let's get into our second quarter results. For the second quarter, total revenue was $116.5 million, up 28% on a year-over-year basis. Subscription and returns revenue grew 28% year-over-year to $108.5 million, which represented 93% of our total revenue. We are very pleased with our subscription growth rate given the COVID-19 pandemic and that Q2 '19 at the time reflected the strongest year-over-year subscription revenue growth since going public.”
“The COVID-19 pandemic has either created or enhanced 4 macro trends that we believe will produce multiyear tailwinds for Avalara. The first is the acceleration of e-commerce adoption. Globally, every business is becoming an e-commerce business. In the past, many businesses have been able to get by managing sales tax compliance manually.”
“Our largest deal in the quarter was $310,000 in total contract value. I'm particularly excited about this deal because it's an international deal sold to a U.K.-based multichannel retailer that purchased our solution mainly because of our Cross-Border product suite. The company selected Avalara because we are a platform provider that can support their global compliance needs, including Cross-Border classifications, calculations of custom duties and import taxes, and U.S. sales tax calculations and returns filings.”
Sentiment Δ +12 [themes: Azure, Customers, and Tools]
MSFT was late to seizing the Cloud market opportunity, however, Azure is gaining traction on Amazon Web Services quarter-over-quarter, surpassing $50bn in revenue for the first time. Now, COVID is accelerating the adoption of digital transformation projects across the enterprise, causing MSFT, GOOG, and AMZN to compete more fiercely for cloud-computing market share. In other segments, Linkedin saw content sharing up by more than 50% year-over-year and live streams were up by 89% since March.
Microsoft earnings call quotes:
“We delivered record results this fiscal year powered by our commercial cloud, which surpassed $50 billion in revenue for the first time, up 36% year-over-year. The last 5 months have made it very clear that digital tech intensity is key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger.”
“Office Consumer revenue grew 6% and 7% in constant currency as stronger-than-expected growth in Office 365 consumer subscriptions was partially offset by transactional weakness. As a result, we saw a significant quarter-over-quarter increase in Office 365 consumer subscribers, up more than 3 million to 42.7 million.”
“LinkedIn revenue increased 10% and 11% in constant currency as a weak job market materially impacted annual bookings in our Talent Solutions business even as usage remained high.”
Sentiment Δ -68 [themes: Retention and Guidance]
Workday lowers their FY ‘21 guidance saying that the subscription growth rate will be at 19% and for Q2 at 21% growth. There were 3+ mentions of “Retention” this quarter over last quarter, as WKDAY discussed there could be some impact to retention, given the increased bankruptcies, though they expect retention rates to remain high.
Workday earnings call quotes:
“We are lowering our FY '21 subscription revenue estimate to be in the range of $3.67 billion to $3.69 billion or 19% growth. We expect our Q2 subscription revenue to be $913 million to $915 million or 21% growth. We now expect professional services revenue to be $500 million in fiscal '21 and $128 million in Q2.”
“Given the current uncertainty around net new business, renewal rates and potential changes to contract durations during the remainder of the year, we will only be providing Q2 backlog guidance at this time.”
Sentiment Δ-50 [themes: SMB, Geos, and Impact)
VMW experienced headwinds in their transactional business and some softness in their Asia-Pacific markets. Year-over-year growth rates for licenses have shrunk, and total revenue growth rates are expected to reach the mid-single digits.
VMWare earnings call quotes:
“And I think many of those implications aren't fully realized through the economy yet. And as a result, we expect the next couple of quarters to be tough quarters overall for the market. No market segment, no geo is immune to those effects.”
“There's no doubt we had some headwind in the portion of our transactional business, in particular, that area that's more exposed to the SMB segment. We also did see some softness there in APJ. Of course, this has countered to some extent by the strength we saw on VMC on AWS and some of the other areas, but we definitely saw softness there. And we do think that as we contemplate the remainder of the year and the impact for the remainder of the year, the on-premises and some of the core elements will be more impacted than other parts of the emerging parts of the business.”
“However, with the immediate global economic challenges resulting from COVID-19 and its anticipated impact on our customers, we believe it's reasonable to expect revenue growth to be in the mid-single digits for full year FY '21. As economies around the world recover, we would expect to get back to a more normalized double-digit growth rate in FY '22.”
2.) Social Media
- As consumers spend a greater share of time locked in place at home, social media apps and services are seeing record numbers across DAUs and MAUs
- Civil unrest in the U.S. led brands to pause advertising briefly in mid-June, leading to lower ad-revenues for Twitter
- Even with major corporations boycotting FB for failing to prevent hate speech from spreading on their platforms, it grew advertising revenues through SMBs
- Trump issued an order banning WeChat and TikTok if they are not sold by their parent company, Bytedance, within 45 days
Sentiment Δ-12 [themes: Ads and MDAUs]
Twitter ad revenue sinks while MDAUs (Monetizable Dail Active Usage) soars. People have flocked to Twitter to engage in conversations about systemic racism, the U.S. election, and more. During the initial wave of protests in late May to mid-June, brands slowed their ad spend with Twitter, however now it’s seeing a moderate recovery in demand.
Twitter earnings call quotes:
“Last quarter, we noted that in Q1, widespread economic disruption and a significant decrease in global ad spend as a result of the pandemic led to a 27% decline in year-over-year ads revenue in the 3 weeks of March -- in the last 3 weeks of March. We saw a gradual moderate recovery relative to March levels throughout most of Q2, with the exception of late May to mid-June when many brands slowed or paused spend in reaction to U.S. civil unrest. There was a lot happening in June. But if you look at the last 3 weeks of the quarter, we were down 15%, a significant improvement from the (inaudible) in the last 3 weeks of March, and demand gradually improved once brands returned after the protests subsided.”
“We saw tremendous growth in audience and engagement, growing mDAU to 186 million, a 34% year-over-year increase, our highest reported growth rate. People continue to come to Twitter to learn about and participate in conversations focused on systemic racism and Black Lives Matter, COVID-19, and the reopening and reclosing of economies all around the world.”
Sentiment Δ+34 [Themes: Ads, Growth, and Small Business]
Unlike Twitter, FB increased year over year revenue, amidst corporate boycotts from major companies -- Addias, Clorox, Coca-Cola, and more -- for what they say are FB’s failure to prevent hate from spreading. To explain FB’s continued growth in advertising revenue, management emphasized that “Small businesses are the biggest part of our business, not the large businesses.”, signaling that FB can thrive even amongst boycotts.
Facebook earnings call quotes:
“After seeing flat year-over-year revenue growth in the first few weeks of April, we saw a considerable recovery in May and June.
“Our total ad revenue for Q2 was $18.3 billion, which is a 10% year-over-year increase.”
“On a user regional basis, ad revenue growth was strongest in U.S. and Canada, Asia Pacific and Europe, which grew 14%, 11% and 9%, respectively. Rest of world declined 6% and was impacted by challenging macroeconomic conditions as well as foreign currency headwinds.”
“It's worth noting, like I said in my opening remarks, this really is primarily focused on small businesses, individual entrepreneurs. Small businesses are the biggest part of our business, not the large businesses. Of course, we want them to be using our platform, too. We want to serve everyone. But if you, as investors or as analysts or anyone who's thinking about our business, really the accurate way to think about what we do is that we are in the business of serving small businesses, and all these different things that we're doing are going to be geared towards enabling those folks to grow, reach customers and create jobs around the world.”
- Revenue for brick and mortar stores is plummeting, amidst a global recession, record U.S. unemployment rates, and a pandemic
- E-commerce and omnichannel players are seeing continued growth as consumers opt to buy groceries, personal items, and more online more frequently than in person
Sentiment Δ-148 [themes: Sales, Guidance, and Stores]
As evident by the chart below, BURL reported that revenues plummeted by 50% in the first quarter of the year. Management attributed the drop in sales to COVID-19 and anticipates that Q2 will also be challenging given the volatility in demand.
Burlington earnings call quotes:
“As reported in today's press release, our sales declined 51% in the first quarter. We estimate that the COVID-19 pandemic drove a cumulative sales miss of approximately $1 billion to plan in the quarter. This led to an adjusted net loss of $312 million or $4.76 per share. This loss includes a $272 million charge that we took against our inventory at the end of the quarter.”
“As I have already mentioned, we expect the next few months to be extremely promotional as retailers attempt to rebuild traffic to their stores and to turn their inventory. This is likely to be exacerbated by some struggling retailers closing large numbers of stores and liquidating their merchandise. We believe that the inventory reserve that we set up at the end of the first quarter will enable us to aggressively compete in this environment.”
“That's going to be particularly challenging in the second quarter, partly because of the volatility around demand and uncertainty around what our sales forecast -- what our actual sales are going to be but also because there are going to be some incremental expenses at the stores. “
Sentiment Δ +46 [themes: GPU (gross profit unit), Growth, and Capacity]
Carvana, an e-commerce platform for buying and selling used cars, is experiencing continued growth as e-commerce adoption increases through the pandemic. To meet the accelerating demand for cars through their platform, management has opened a new inspection & reconditioning center, which will bring their annual production capacity up to 500,000 units.
Carvana earnings call quotes:
“We grew units by 25% in the quarter, including decreases in sales year-over-year in early April and growth of approximately 40% later in the quarter. This growth was achieved despite managing through the most difficult period of the pandemic and facing severe inventory constraints.”
“In the second quarter, we also saw a rapid rebound in GPU, which demonstrates the resilience in our model across each of our gross profit contributors, as well as the speed of our reaction at the onset of pandemic. Managing through this unique environment has also led to efficiency on the expense side and demonstrated the long-term strength of our cost model.”
“To meet accelerating demand for our online offering, we are actively taking steps to expand our production capacity. Following quarter end, we opened our ninth IRC near Columbus, Ohio, bringing our annual production capacity to nearly 500,000 units at full utilization. In addition, we are on track to open 2 additional IRCs by year-end, adding more than 100,000 additional units of capacity at full utilization, and we have a pipeline of future facilities beyond those.”
- TSA traveler throughput is on the rise, but it’s only 29% of what it was last year, and passenger revenues have sunk for all major airlines
- Delta, United, and Southwest all reported losses and are now focused on cash preservation and breaking even
- Across all Airlines, management believes demand will be depressed until a vaccine is widely available to consumers
Sentiment Δ+21 [themes: demand, cash burn, and recovery]
With the second wave COVID-19 cases, DAL anticipates Q3 revenue to be 20% to 25% of last summer’s revenue. In Q1, Delta reported a daily cash burn rate of $100 million per day. For Q2, it reported that the daily cash burn rate had been reduced to $27 million for the month of June, and its aim is to breakeven by the end of 2020.
Delta earnings call quotes:
“We're expecting our overall revenue for the September quarter will be only 20% to 25% of what we saw last summer, and we've seen demand growth flatten recently with the rise in COVID-19 cases.”
“With demand growth stalled at present, we expect July's daily cash burn to be similar to what we saw in June. As we go through the summer and into the fall, we'll continue to move quickly to balance what we're seeing in the revenue environment with our ability to get costs out of the business and keep us on the path to achieve our goal of breakeven cash burn by the end of the year.”
“Since demand bottomed in mid-April at less than 5% of our normal traffic, we've seen a small but welcome uptick in passenger volume being driven almost entirely by domestic leisure travelers or those flying for essential reasons. And while it's encouraging to see customers start to return, the revenue environment remains challenging. We have thought from the start that the recovery will be choppy, and the past few weeks have shown that to be true.”
Sentiment Δ+7 [themes: capacity and load factor]
Like other major airlines, SouthWest posted a major loss in Q2, citing that travel demand will likely remain depressed until a vaccine is widely available. To mitigate further losses in the face of volatile demand, Gary Kelley, SouthWest’s CEO, said they will be aggressively adjusting flight schedules.
Southwest earnings call quotes:
“All right. Turning to Q3. With our mid-June investor update, we estimated another modest improvement for July. And at that point, we're expecting operating revenues to be down roughly 65% to 70% with capacity down 30% and a load factor in the 45% to 55% range.”
“Over the past several weeks, we've seen our net bookings decline 10 to 15 points year-over-year versus what we're seeing coming to the month, which is a pretty significant change, very quickly, very abrupt. The trends are similar in August. Demand is much softer than we anticipated, and we're estimating August operating revenues to be down 70% to 80% year-over-year with the load factor of 30% to 40% range, and that's on capacity that's currently down 20% year-over-year.”
Sentiment Δ-2 [themes: capacity, revenue, and cost]
UAL reported a loss of $1.63 billion during Q2, in the same quarter last year they reported a $1.05 billion profit. Interestingly, UAL’s cargo revenues were up by 36% year-over-year, which accounted for 27% of United’s revenue for the quarter. Like other major airlines, United said “We expect that air travel is not likely to get back to normal until we’re closer to a widely administered vaccine — so we’re in this for the long haul”.
United Airlines earnings call quotes:
“In fact, our change in total revenue in the quarter of down 87% winded up being consistent with our total capacity being down 88%. Our network peers flow more capacity than United, and we believe our careful management of capacity, pricing and cargo during the quarter is the primary driver of our good results relative to our network peers in terms of absolute losses and cash burn.”
“Orders are up around the world now, and international revenue is low. We believe at United that we have already felt the worst of the international passenger revenue decline impact. Borders will open someday, and we believe United is well positioned to experience the fastest international revenue growth when they do. Corporate traffic, which was down 96% in June, will also be slower to come back than leisure, but we believe it will.”
“However, we continue to believe a full recovery is contingent upon effective therapeutics and a vaccine. Our best guess is demand, as measured by revenue, will recover over time to be down approximately 50% and then plateau at that level until a vaccine is widely distributed.”