This is an update to the article “Playing Defense with Cloud Software Stocks” published on May 27th, 2020
Rebound numbers from Q3 will look spectacular following the paralyzing effects of strict shelter-in-place orders in Q2. The economy is officially in a recession after posting two negative quarters of GDP growth at (5%) in Q1 and (32%) GDP in Q2. The latest estimate from Atlanta’s Fed GDPNow for Q3 2020 is showing a record rebound of 35.3%.
This represents an increase of 7.9% quarter-over-quarter and 3.1% below the pre-recession high. For comparison purposes, the Financial Crisis of 2008 bottomed at 4.0% below its pre-recession during the third and fourth quarters of its recession.
The chart above shows the projected Q3 rebound of 35.3% from the Atlanta Fed’s GDP Now released on October 6th, 2020.
Cloud and IT Budgets: Staying Objective
Some will argue the market is not the economy (which is true), however, cloud software can’t stop the spiraling effects of lower IT/cloud spending and tighter budgets that follow a weaker economy. One area that companies might reduce costs is to trim down on the number of cloud software and tools they use. Unemployment could exacerbate this if the subscriptions are paid per employee.
Spiceworks recently released a survey that shows 80% of IT-decision makers expect IT budgets to grow or stay steady over the next 12 months. This supports the notion that even during periods of uncertainty, IT and cloud are central and critical to operations.
With that said, the decision-makers polled stated the primary drivers in IT budgets are noted to decrease year-over-year except covid-related budget allocations. In the past, drivers such as employee growth, security concerns, and the