For most publicly-traded companies, there was never a good time for the Brexit vote. But for the large software companies that market to corporate IT departments, the referendum at the close of the second quarter came at a particularly inopportune moment.
Slippage of large accounts from one quarter to the next is a landmine for software companies, resulting in earnings misses and making the last days of a reporting period crucial for sales.
"[T]he timing of this exogenous market shock couldn't have come at a worse time," Credit Suisse analyst Michael Nemeroff wrote in a report, noting that "most enterprise-focused software companies -- regardless of size -- sign a large amount of business in the final few weeks of each [quarter]."
Nemeroff suggested that well-positioned stocks, given recent declines and their low exposure to Brexit fallout, include Ultimate Software (ULTI) and 2U (TWOU) , with 98% of revenues from the U.S. and none from the UK and Europe; Paycom (PAYC) , with 100% from the U.S.; and Synchronoss (SNCR) , which generates 90% of its top line in the U.S. and 10% in the UK and Europe.
Higher risk companies include Open Text (OTEX) and Verint Systems (VRNT) , each with more than 30% of sales in Europe; Cornerstone OnDemand (CSOD) , with 30% in Europe; and Adobe (ADBE) , with 3% in the U.K. and 22% in Europe.