Core Insights - The Zacks Internet Software industry is experiencing volatility due to fears of AI disrupting the traditional SaaS space, alongside heightened geopolitical risks and tariff uncertainties. However, companies like MongoDB, Digital Turbine, and 8x8 are benefiting from increased demand for digital transformation and cloud solutions driven by the need for remote working and AI-powered applications [1] Industry Overview - The Zacks Internet Software industry includes companies that provide application performance monitoring, infrastructure and application software, DevOps deployment, and security software. The primary revenue sources are subscription and advertising, targeting various end markets such as banking, education, and healthcare [2] Trends Shaping the Industry - **Adoption of SaaS Grows**: The industry benefits from the demand for digital transformation, with SaaS providing a flexible and cost-effective delivery method for applications, enhancing customer satisfaction and retention [3] - **Pay-As-You-Go Model Gains Traction**: The customer-centric approach allows users to scale offerings according to needs, with the subscription model ensuring recurring revenues and affordability for small and medium-sized businesses [4] - **Ongoing Transition to Cloud Creates Opportunities**: The need for secure cloud platforms amid rising cyberattacks drives demand for web-based cybersecurity software and performance management tools [5] Industry Performance - The Zacks Internet Software industry holds a Zacks Industry Rank of 139, placing it in the bottom 43% of over 250 Zacks industries, indicating dull near-term prospects [6][7] - The industry has underperformed the S&P 500 and the broader Computer and Technology sector, returning 16.9% over the past year compared to the S&P 500's 17.2% and the sector's 23.1% [10] Current Valuation - The industry is currently trading at a forward 12-month price-to-sales (P/S) ratio of 4.09X, lower than the S&P 500's 5.30X and the sector's 6.8X, with historical trading ranging from 4.09X to 5.99X over the past five years [13] Company Highlights - **MongoDB**: This company has seen a 29% year-over-year revenue increase in Q2 of fiscal 2026, adding over 5,000 customers in the past two quarters. Its shares have appreciated 29% in the past year, with a consensus estimate for fiscal 2027 earnings at $5.61 per share [17][18][19] - **Digital Turbine**: Expected revenues for fiscal 2026 are projected between $553 million and $558 million, with shares dropping 24% in the past year. The consensus estimate for fiscal 2026 earnings is 36 cents per share [22][23] - **8x8**: This company has experienced nearly 60% year-over-year growth in usage-based offerings, with shares down 19% over the past year. The consensus estimate for fiscal 2026 earnings is also 36 cents per share [26][27]

Core Insights - Databricks announced a revenue run rate of $5.4 billion, a 65% year-over-year increase, with over $1.4 billion coming from AI products [2] - The company aims to redefine its identity beyond a SaaS label, positioning itself as an AI company in the private market [2] - Databricks completed a $5 billion funding round, achieving a valuation of $134 billion, and secured an additional $2 billion credit line [2] Company Developments - CEO Ali Ghodsi highlighted the AI product Genie, a large language model user interface that simplifies data warehouse queries using natural language [3] - Genie is expected to drive increased usage of data warehouses by making it accessible to non-technical users [3] - Databricks is also developing Lakebase, a database designed specifically for AI agents, which has shown early revenue attraction [5] Industry Implications - The threat posed by AI to the SaaS industry is not about replacing core record systems but rather transforming user interfaces, potentially diminishing the need for expertise in specific SaaS products [7] - Companies embracing new large language model interfaces may experience growth, while AI-native competitors could emerge with better collaboration solutions [5] - Ghodsi emphasized the importance of maintaining a strong capital position to navigate potential market downturns, indicating that now is not the right time for an IPO [8]

Core Viewpoint - Destiny Media Technologies Inc. has announced the resignation of Fred Vandenberg as President and CEO, effective February 9, 2026, and has appointed Hyonmyong ("Hoch") Cho as interim CEO while searching for a permanent replacement [1][2]. Group 1: Leadership Changes - Fred Vandenberg joined Destiny Media Technologies in 2004, became CFO in 2007, and was promoted to CEO in June 2017. He will assist during the transition and remain on the Board of Directors [2]. - Hoch Cho, the interim CEO, expressed gratitude towards Vandenberg for his contributions and emphasized the importance of continuity during the leadership transition [3]. Group 2: Company Overview - Destiny Media Technologies provides SaaS solutions for the music industry, specifically through its core service, Play MPE®, which facilitates promotional music marketing to networks in radio, film, and TV [4].

Core Insights - Databricks has achieved a revenue run rate of $5.4 billion, reflecting a 65% year-over-year growth, with over $1.4 billion coming from AI products [2] - The company aims to differentiate itself from traditional SaaS labels, as it is primarily valued in private markets as an AI company [3] - Databricks has successfully closed a $5 billion funding round at a valuation of $134 billion and secured a $2 billion loan facility [3] AI Product Impact - The LLM user interface named Genie is significantly driving the usage of Databricks' data warehouse, allowing users to interact with data using natural language [4] - Genie simplifies data queries that previously required technical expertise, contributing to the company's growth in usage [5] SaaS Industry Dynamics - The perceived threat of AI to SaaS is not about replacing existing systems of record but rather transforming user interfaces to be more accessible [6][7] - Ghodsi emphasizes that the challenge for SaaS businesses lies in the potential invisibility of their products as interfaces become more user-friendly, which could diminish the need for specialized knowledge [8]

Group 1 - The overall economic environment has "not deteriorated," and the future of artificial intelligence will largely dominate market sentiment [2] - Concerns arose after the release of a new plugin by AI startup Anthropic, which could potentially reduce demand for services from software companies, impacting around 8% of the S&P 500 index [3] - Despite a brief recovery in stocks, most investors ended the week feeling "shocked," with market sentiment shifting from "bearish to deeply pessimistic" [4] Group 2 - The Nasdaq Composite Index experienced a significant drop of 5% within three trading days, resulting in a loss of trillions in market value [4] - There is an ongoing debate regarding the extent to which AI will commoditize Software as a Service (SaaS) companies, with differing opinions on whether the recent decline is overblown or justified [4] - Analysts noted that the winners and losers of revolutionary technologies often take years to become clear, but the resilience of the U.S. economy suggests that the decline in software stocks may not be long-lasting [5]

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Financial Data and Key Metrics Changes - Revenue for Q3 2026 was reported at just over $312 million, exceeding expectations, with a year-over-year growth of 21% in the North America Retail and European Hospitality segments [5][14] - Adjusted EBITDA reached $20.2 million, reflecting a 22% increase from $16.6 million in Q3 last year, and represented 15% of gross profit, moving closer to the long-term target of 20% [12][22] - Free cash flow was positive for the second consecutive quarter at $15 million, contributing to an increase in total cash balance by over $31 million since Q1 [12][23] Business Line Data and Key Metrics Changes - Customer locations in growth engines grew by 9% year-over-year, adding approximately 2,600 net new locations in Q3, with total customer locations reaching approximately 148,000 [7][14] - Software revenue grew by 6% year-over-year, with growth engines delivering a 13% increase, while software ARPU rose by 4% year-over-year [10][16] - Transaction-based revenue was $209.4 million, up 15% year-over-year, with GPV growing by 19% year-over-year [17][19] Market Data and Key Metrics Changes - GTV grew by 8% to $25.3 billion, with same-store sales increasing in both retail and hospitality across all main geographies [18] - Payments penetration increased to 46%, up from 42% last year, indicating a strong upward trend in payment adoption [14][16] - Gross profit grew by 15% year-over-year, outpacing revenue growth of 11%, with total gross margin improving to 43% from 41% last year [19][21] Company Strategy and Development Direction - The company is focused on two growth engines: North America Retail and European Hospitality, which together account for two-thirds of total revenue [5][14] - Key priorities include growing customer locations, expanding subscription ARPU, and improving Adjusted EBITDA and free cash flow [6][12] - The introduction of innovative products, such as Lightspeed AI and Marketplace, aims to enhance customer engagement and drive revenue growth [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the health of end markets, noting positive same-store sales growth across all regions, with no significant surprises in the macro environment [32][33] - The company anticipates continued upward trends in payments penetration and expects to generate positive free cash flow for the full fiscal year [15][19] - The outlook for Q4 includes expected revenue of approximately $280 million to $284 million, with a focus on maintaining profitability despite seasonal trends [28][81] Other Important Information - The company ended Q3 with approximately $479 million in cash, an increase of about $16 million from the previous quarter, and has $200 million remaining under its share repurchase authorization [24][25] - The appointment of Gabriel Benavides as Chief Revenue Officer is expected to accelerate go-to-market performance and expand software ARPU [29] Q&A Session Summary Question: Health of end markets and same-store sales growth - Management reported healthy same-store sales growth across all regions, with strong performance in highly penetrated verticals, although some deceleration was noted in seasonal categories [32][33] Question: Sustainability of software gross margins - Management expressed confidence in maintaining software gross margins above 80%, attributing improvements to operational efficiency and cost optimization [36][37] Question: Differentiated software capabilities and AI disruption - Management highlighted proprietary payments and wholesale data as key differentiators, with ongoing investments in AI to enhance workflows and customer insights [41][42] Question: Growth trajectory for software and pricing strategy - Management indicated that while pricing changes impacted growth, the focus remains on expanding the growth engines and enhancing product offerings [49][50] Question: Payment penetration in efficiency markets - Management noted that payments penetration in efficiency markets is currently in the low 30s, with expectations for continued growth as contracts renew [94][95]

Financial Data and Key Metrics Changes - Total revenue for Q4 2025 was $32.4 million, down 10% year-over-year and roughly flat compared to Q3 2025 [14] - Total bookings for the quarter were $31.2 million, down 5% year-over-year [14] - Adjusted EBITDA for Q4 was $9.4 million, with a margin of 30%, compared to $9.2 million and a margin of 26% in the prior year [20] - Net income for Q4 was $1.3 million or $0.03 per diluted share, compared to $1 million or $0.02 per diluted share in the prior year [20] Business Line Data and Key Metrics Changes - ClearanceJobs revenue was $13.9 million, up 1% year-over-year, with bookings at $14.6 million, up 3% year-over-year [14][15] - Dice revenue was $17.4 million, down 17% year-over-year, with bookings at $16.6 million, down 11% year-over-year [14][16] - ClearanceJobs had a revenue renewal rate of 90% and a retention rate of 109% [15] - Dice's revenue renewal rate was 78% and its retention rate was 94% [16] Market Data and Key Metrics Changes - The U.S. defense budget for fiscal year 2026 is projected to increase significantly, which is expected to benefit ClearanceJobs [8] - The tech staffing market is showing signs of recovery, with projections indicating a return to growth in 2026 after declines in previous years [11][27] Company Strategy and Development Direction - The company aims to leverage the increased defense spending to drive growth in ClearanceJobs, which is expected to be the primary growth engine [12][13] - The introduction of the Dice Employer Experience platform is intended to expand the addressable market and improve operational efficiency [11] - The company is focused on delivering long-term, sustainable, and profitable revenue growth, targeting free cash flow generation averaging at or above 10% of revenues [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing the record-breaking defense budget as a growth driver for ClearanceJobs [27] - The company anticipates that the commercial tech hiring environment will stabilize, which could lead to growth in Dice [27] - Management noted that while the hiring environment has been challenging, there are signs of improvement in the tech staffing market [27] Other Important Information - The company has authorized a new $10 million stock repurchase program starting this month [13] - Total committed contract backlog at the end of the quarter was $99.6 million, down 5% year-over-year [23] Q&A Session Summary Question: What are the assumptions around the bookings trajectory for ClearanceJobs? - Management indicated that improved sales execution and the new defense budget are expected to positively impact bookings for ClearanceJobs in 2026 [31] Question: How is the growth of AI-related job postings affecting Dice? - Management noted that there is high demand for AI professionals, and they believe this will become more visible in 2026 [34] Question: What is causing the margin compression for Dice? - Management explained that the margin compression is primarily due to lower revenue and bookings challenges, although they plan to target lower operating expenses in 2026 [37] Question: Can you elaborate on the new Premium subscription package for ClearanceJobs? - Management described the Premium subscription as offering features similar to LinkedIn Premium, aimed at enhancing candidate engagement with recruiters [41][42] Question: What encouraging signs are being observed in the macro environment? - Management highlighted the positive trends in defense spending and improvements in tech staffing demand as encouraging signs for future growth [51]

Group 1 - The article focuses on Adobe Inc. as a leading company in the Software as a Service (SaaS) sector, highlighting its significance in the tech industry [1] - The author has over a decade of experience in financial markets, primarily in hedge funds, and emphasizes a rigorous research approach to investment [1] - The author expresses a strong interest in tech sectors, particularly SaaS and cloud businesses, while also exploring opportunities in energy and minerals sectors [1] Group 2 - The article does not provide any specific financial data or performance metrics related to Adobe Inc. or the SaaS industry [3]

Group 1 - The article focuses on Adobe Inc. as a leading company in the Software as a Service (SaaS) sector, highlighting its significance in the tech industry [1] - The author has over a decade of experience in financial markets, primarily in hedge funds, and emphasizes a rigorous research approach to investment [1] - The author expresses a strong interest in tech sectors, particularly SaaS and cloud businesses, while also exploring opportunities in energy and minerals sectors [1] Group 2 - The article does not provide any specific financial data or performance metrics related to Adobe Inc. or the SaaS industry [3]