DaaS in Q3 outperforms the market by a factor of 3x

DaaS investors are patting themselves on the back after a strong aggregate Q3 showing by publicly traded DaaS companies. While the broader market (S&P 500) posted a 4.1% return for Q3 2024, DaaS companies outperformed on an absolute and a market cap adjusted basis. 

The Stats:

# of Companies: 58

Average Q3 Performance: 5.77%

Market Cap Adjusted Q3 Performance: 12.89%

Top Performing Sector: Credit+Identity Data

Top Performer: TransUnion($TRU) + 43.89%

Worst Performer: Cardlytics($CDLX) - 60.40%

To figure out what went wrong, what went right and what the industry is prepping for we used Nomad’s Data AI Powered Transcript Chat to pull in and analyze all DaaS earnings calls for Q3 2024. 

Surprises and Standouts

Several companies demonstrated exceptional performance and strategic initiatives that set them apart from their peers:

• FactSet Research Systems exceeded expectations with annual revenue of $2.2 billion and an adjusted EPS of $16.45, both surpassing their guidance. The company's focus on integrating generative AI into client workflows and developing new AI-powered solutions has driven incremental ASV and improved client retention.

• Planet Labs reported impressive results with a 14% year-over-year revenue growth and a non-GAAP gross margin of 58%. The company's success in the Defense & Intelligence sector, coupled with its strategic use of AI in satellite technology and data products, positions it well for future growth.

• Moody's Corporation delivered a record third quarter with a 23% increase in revenue and a 32% growth in adjusted diluted EPS. The company's strong performance across various segments and its rollout of AI-enabled products demonstrate its ability to leverage technology for growth.

• SEMrush Holdings exceeded revenue expectations with a 24% growth, reporting $97.4 million in revenue. The company's success in integrating AI into product offerings, such as ContentShake AI, has been a significant driver of growth and customer engagement.

Fumbles

While many companies reported positive results, some faced challenges and disappointments:

• TomTom NV experienced a decrease in group revenue for the third quarter of 2024, with a 2% decline compared to the same quarter last year. The company's Automotive segment saw a significant decline in operational revenue, attributed to a weakening global automotive industry and delays in new car model launches.

• RateGain Travel Technologies faced challenges in maintaining their growth rate due to the loss of a large client. The company adjusted their growth guidance to around 15% for the full year, citing pricing pressure and a slowdown in contract wins, especially in the U.S. market.

• Clarivate PLC expressed disappointment in their financial performance for the third quarter of 2024. The company's CEO described the results as "disappointing and not what we aim to achieve," with a decline in organic growth and revenue falling short of projections. As a result, Clarivate removed their full-year and long-range guidance.

Main Themes

Several key themes emerged across the earnings calls, highlighting industry trends and strategic priorities:

• AI Integration and Innovation: Companies across the board are leveraging AI to enhance their product offerings, improve operational efficiency, and drive growth. FactSet, Planet Labs, Trustpilot, and many others are integrating AI into their workflows and developing new AI-powered solutions.

• Data as a Service (DaaS) Growth: Companies like RateGain, ZoomInfo, and London Stock Exchange Group emphasized the importance of their DaaS offerings. RateGain reported that DaaS contributed to 32% of their total revenue, while ZoomInfo's DaaS business grew by 22% year-over-year.

• Strategic Partnerships and Acquisitions: Many companies highlighted the importance of collaborations and acquisitions in driving growth. Dun & Bradstreet announced partnerships with LSEG and ICE, while CoStar Group's acquisition of Visual Lease is expected to enhance its business line.

• Focus on Operational Efficiency: Companies are prioritizing operational efficiency and cost management to enhance profitability. Planet Labs implemented organizational changes to align resources with market opportunities, and Verisk is focusing on product innovation and data integration.

• Client Retention and Expansion: Maintaining high client retention rates and acquiring new clients remain crucial for sustained growth. Trustpilot emphasized strategic clarity and execution to drive growth, while LiveRamp focused on expanding its data collaboration platform.

Challenges

Despite the overall positive trends, companies face several challenges in the current market environment:

• Macroeconomic Uncertainty: Many companies cited ongoing macroeconomic uncertainty as a significant challenge. FactSet noted that this uncertainty is impacting client budgets, while TomTom faced a slowdown in the global automotive industry.

• Pricing Pressure and Competition: Companies are experiencing increased pricing pressure and competition in their respective markets. TomTom mentioned price pressure from OEMs, and IQVIA noted significant pricing pressure in the R&DS segment.

• Regulatory and Geopolitical Challenges: Regulatory changes and geopolitical events pose challenges for some companies. CME Group highlighted concerns about the regulatory environment, while S&P Global faced headwinds in the financial services sector.

• Customer Budget Constraints: Tight customer budgets and cautious spending are impacting growth for many companies. Clarivate noted budget pressures in the Life Sciences and IP segments, while LiveRamp mentioned a tepid demand environment due to economic uncertainty.

• Talent Acquisition and Retention: As companies increasingly focus on AI and technology integration, attracting and retaining skilled talent becomes crucial. RateGain mentioned using AI in HR to help find the right talent, indicating the importance of this challenge.