Many cloud-software or software-as-a-service (SaaS) companies saw their shares take a beating last quarter despite earnings results surpassing analysts’ estimates, thanks to over valuation concerns.
But now the sentiment has started to shift toward SaaS companies. This is because SaaS stocks have time and again notched the best revenue growth among software companies. SaaS stocks not only have a predictable subscription revenue stream, these stocks are high-growth companies owing to their alignment with cloud computing.
Cloud-software companies enjoy high margins since costs linked with delivering a cloud-hosted software service is relatively less. Widely speaking, SaaS stocks are winners in the near term with fat margins and steady revenue streams. But, will the growth continue? Just 20% of such organizations have shifted to the cloud, leaving plenty of room for growth. And margins will surely improve as the software industry grows stronger. Thus, it’s not too late to get optimistic on SaaS stocks. After all, it is a software distribution model, where a third-party provider hosts applications and makes them available to customers over the Internet.
In fact, competition in the SaaS space has intensified from an average of 2.6 competitors per company five years back to 9.7 competitors per company now, according to a survey by PriceIntelligently. This almost three-fold increase in SaaS startups is mostly because of higher requirement for SaaS applications. Any company that has an employee strength of 250, needs an average 124 SaaS applications, while a company that has only 10 employees requires an average of 26 SaaS applications.
Last but not the least, Gartner Inc. expects SaaS to be one of the fast-growing market segments in the near term, with revenues expected to grow exponentially through 2022. Take a look at the table —
Pick Cloud-Software Stocks for Stellar Gains in 2020
We have, thus, zeroed down on four solid SaaS stocks that are worth a look next year. These stocks flaunt a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Microsoft Corporation MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The Zacks Consensus Estimate for its next-year earnings has moved up 1.7% over the past 60 days. The company’s expected earnings growth for the next quarter and year is a promising 8.8% and 12.3%, respectively.
Five9, Inc. FIVN provides cloud software for contact centers in the United States and internationally. The Zacks Consensus Estimate for its next-year earnings has moved 1.2% north over the past 60 days. The company’s expected earnings growth for the current and next year are a superb 28.3% and 10.4%, respectively.
Zuora, Inc. ZUO provides cloud-based software on a subscription basis that enables companies in various industries to launch, manage and transform into a subscription business. The Zacks Consensus Estimate for its next-year earnings has climbed 9.5% over the past 60 days. The company’s expected earnings growth for the next quarter is a stellar 45.5%.
Zoom Video Communications, Inc. ZM provides a video-first communications platform primarily in the Americas, the Asia Pacific, Europe, the Middle East and Africa. The Zacks Consensus Estimate for its next-year earnings has risen 52.9% over the past 60 days. The company’s expected earnings growth for the next quarter is a whopping 100%.
Zacks Top 10 Stocks for 2020
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Five9, Inc. (FIVN) : Free Stock Analysis Report
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