How big is the storm in cloud software? Salesforce, Zoom and Snowflake are about to tell you

All of these companies are under scrutiny as cloud software faces its first real economic challenge after more than a decade of widespread adoption of easy-to-use online “as-a-service” subscription cloud offerings. While the “freemium” and “pay for what you use” business models helped these companies grow fast, investors fear that they now face scrutiny from their business customers watching bottom lines and headcounts.

For more: Cloud software is a ‘fight for a knife in the mud,’ and Wall Street is souring on the one sector that was winning

Pandemic-era growth has already largely come to a halt, with big consequences. Zoom, which became synonymous with videoconferencing as COVID-19 washed across the globe, recently announced plans to slash 15% of its staff as lockdown work habits fade. Wall Street expects that was a signal that all is not well at Zoom, with JPMorgan analysts calling them a “sign of the times” earlier this month, and not in a good way.

“We believe the magnitude of the layoff likely indicates an incrementally worse macro environment and outlook for FY24, aligning with commentary recently conveyed by the hyperscalers and many other software companies on their earnings calls,” they said.

Salesforce, Workday, Okta and Splunk are also cutting staff after beefing up during the first couple years of the pandemic, and face more issues beyond. Salesforce has multiple activist investors circling the company, with hopes of jostling more growth from the company. So does Okta Inc. OKTA, another workplace-management platform, which is also cutting jobs, following what its chief executive characterized as over-aggressive growth.

Tech layoffs: Dell, Splunk and Okta join in binge of tech layoffs

Layoffs have largely signaled that the end of 2022 was not kind to these companies, but Wall Street will be more interested in what executives think is ahead for their slimmed-down staffs. Their forecasts will determine whether a recent recovery in cloud-software stocks — the iShares Expanded Tech-Software Sector ETF IGV is up nearly 9% so far this year after falling nearly 36% in 2022 — will stick around or fall to the earth.

This week in earnings

Twenty-seven S&P 500 SPX companies will report quarterly results in the week ahead, with Salesforce the only component of the Dow Jones Industrial Average DJIA on the docket, according to FactSet data.

Results from Advance Auto Parts Inc. AAP, AutoZone Inc. AZO and Rivian Automotive Inc. RIVN will fill in the portrait for auto demand and auto-parts demand, after last year’s U.S. auto sales marked the worst in more than a decade. Dell Technologies Inc. DELL and HP Inc. HPQ also report as record declines in personal-computer sales are expected to continue.

The call to put on your calendar

AMC: Movie-theater chain and meme stock AMC Entertainment Holdings Inc. AMC reports fourth-quarter results on Tuesday after a roughly 75% drop in its stock price during 2022. A retail-investor buying spree last month helped regain some of those losses, with shares up more than 50% so far in 2023, but disappointing box-office performance last year signals there will be little to cheer in the numbers beyond the sequel to “Avatar.”

The earnings and conference call could bring more drama from Chief Executive Adam Aron — who has tried to strike a populist tone with the company’s retail shareholders — and the share price of both AMC stock and their APE counterpart APE. Executives will be banking on a busier theatrical-release schedule this year, as theaters nationwide dig themselves out of a pandemic-sized hole, and as Aron tries to tame frustrated investors following its efforts to sell stock and raise capital. One research group said AMC’s recent move to price movie tickets based on seating location wouldn’t solve the company’s problems.

The numbers to watch

Retail sales, outlooks: After the retail sector took center stage last week, there will many more results still remain. Big-box retailer Target Inc. TGT reports fourth-quarter earnings on Tuesday, after analysts reacted favorably to rival Walmart Inc.’s WMT market-share gains in groceries and its growing popularity with higher-income shoppers seeking cheaper alternatives in a higher-priced world.

Analysts will be looking for progress on whether Target’s efforts to lean down operations are working, and whether it can match Walmart’s good luck in attracting a stretched consumer. But Target, in November, cited “rapidly softening demand,” as inflation makes shoppers more hesitant to buy nonessential purchases — like toys, games, clothes and laptops — that have piled up in retailers’ inventories.

For a chain like Target, which sells those items along with groceries, essential spending can risk competing with nonessential spending. BofA analysts, in a note on Thursday, said Target was a bit more sensitive to that decline in discretionary spending. And they said the consumer shift toward spending on groceries, being essential and all, risked diverting customer spending “away from higher margin discretionary categories.”

As customers train their spending on things they need, the corresponding drop-off in demand for clothing and electronics — and the resulting proliferation of discounts — has made 2023 more urgent for parade of other retailers reporting this week. Wall Street will get more context on consumer demand from Kohl’s Corp. KSS, Macy’s Inc. M, Dollar Tree Inc. DLTR, Nordstrom Inc, JWN, Burlington Stores Inc. BURL, Victoria’s Secret & Co. VSCO, Best Buy Co. Inc. BBY, Big Lots Inc. BIG and more.

Most of those dollars are going toward groceries as food prices have stayed higher, lifting fortunes for grocery-store chain Kroger Co. KR, which will report Thursday along with Costco Wholesale Corp. COST Kroger reports as its planned merger with Albertsons Cos. Inc. ACI draws more heat from lawmakers — and concerns the deal will make food more expensive.