Internet software stocks have been benefiting from continued demand for digital transformation among enterprises, which are rapidly adopting Software-as-a-Service (SaaS) delivery model over traditional on-premise infrastructure.
In fact, per Gartner, global IT spending is projected to be up 3.2% in 2019 to $3.8 trillion, driven by enterprise software, cloud and digital-transformation efforts. Enterprise software spending, which is likely to experience highest growth of 8.3% in the current year, is being driven by SaaS, adds Gartner.
Rapid adoption of SaaS, which offers a flexible and cost-effective delivery method of applications, has also been favoring growth prospects of industry players. It also cuts down on the deployment time when compared to legacy systems.
Additionally, the rising need to secure cloud platforms, amid growing incidences of cyber attacks and hacking, continues to spur demand for web-based cyber-security software. Further, growing internet penetration across emerging markets, including Asia, Africa, among others, boosts the long-term prospects of the companies involved.
Notably, Internet ETFs like First Trust Dow Jones Internet ETF FDN and Invesco NASDAQ Internet ETF PNQI have gained10.5% and 12.3%, on a year-to-date basis, outperforming the S&P 500’s gain of 10% during the same period.
Growing Clout of SaaS-based Offerings: Key Catalyst
Primarily, SaaS has played a notable role in addressing customer expectation of seamless communications across multiple channels, including voice, chat, email, web, social media and mobile. Thus, this is driving customer satisfaction that eventually increases retention rate, thereby, boosting revenues of Internet software companies.
The affordability of the SaaS delivery model, particularly for small and medium businesses, is also a key driver. Since cloud-based applications are easy to use, the need for specialized training reduces significantly, lowering expenses, andgenerating profits, in turn. Moreover, a subscription-based business model ensures recurring revenues for industry participants.
Considering the aforementioned factors, we now zero in on the stocks which have not only been performing well, of late, but also have alluring future prospects.
6 Top Picks
Here we have highlighted five Internet software stocks with a Zacks Rank #1 (Strong Buy) and strong fundamentals, which present the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
eGain Corporation EGAN is benefiting from robust adoption of both SaaS and on-premise business-to-consumer (B2C) customer engagement solutions. In fact, the company’s solutions have been adopted by notable enterprise customers, including Avon, Comcast, Fiserv, and Vodafone, to mention a few.
eGain Corporation Price and Consensus
eGain Corporation Price and Consensus | eGain Corporation Quote
The company has delivered an impressive average four-quarter positive earnings surprise of 288.9%. Its shares have appreciated 78.6%, year to date.
The Meet Group, Inc. MEET is leaving no stone unturned to boost engagement on its platform, in a bid to augment the daily active users count. Robust performance of its video platform has aided financial performance.
Additionally, the company is expected to benefit from the recently-announced acquisition of Initech, LLC, a privately-held company that owns and operates the leading same-sex social application, Growlr. Notably, Growlr’s daily active user base of 200,000 deserves a special mention.
The Meet Group, Inc. Price and Consensus
MeetMe, Inc. Price and Consensus | MeetMe, Inc. Quote
The company has generated average four-quarter positive earnings surprise of 48.6%. The stock has advanced 22.7% over the past three months.
Alteryx, Inc. AYX is riding on portfolio strength and expanding customer base. This self-service data analytics software platform provider is expected to benefit from its expanding international footprint and improving penetration in select verticals, including public sector and healthcare domains.
Alteryx, Inc. Price and Consensus
Alteryx, Inc. Price and Consensus | Alteryx, Inc. Quote
The company has a long-term earnings growth rate of 15.4%. We note that on a year-to-date basis, the stock has returned 26.4%.
Digital Turbine Inc. (APPS) provides media and mobile communication solutions for mobile operators, application developers, device original equipment manufacturers (OEMs) and other third parties worldwide.
The company is well positioned to monetize on increasing advertiser demand and incremental adoption of new products, including SingleTap, Notifications and Folders.
Digital Turbine, Inc. Price and Consensus
Digital Turbine, Inc. Price and Consensus | Digital Turbine, Inc. Quote
The company has delivered average four-quarter positive earnings surprise of 87.5%. Shares of the company have surged 66.7%, year to date.
Arco Platform Limited ARCE offers technology-enabled features with an aim toenhance educational content in private schools based out of Brazil.
The company’s expanding network, comprising enrolled students and partner schools, is anticipated to boost ACV bookings, consequently enhancing its financial performance.
Arco Platform Limited Price and Consensus
Arco Platform Limited Price and Consensus | Arco Platform Limited Quote
The company came up with a positive earnings surprise of 28.6% in the last reported quarter. Further, it has a long-term earnings growth rate of 40.1%. The stock has rallied 21.2%, year to date.
Micro Focus International PLC Sponsored ADR MFGP is an infrastructure software company which develops, sells, and supports software products and solutions.
The incremental adoption of the recently–introduced Data Protector Express and Data Protector Premium aimed at enabling enterprises with disaster recovery and data-backup solutions will likely favor its top-line growth, going ahead. Moreover, the company is well poised to benefit from the recent buyout of Interset, which is engaged in providing endpoint security analytics software.
Micro Focus International Price and Consensus
Micro Focus International PLC Sponsored ADR Price and Consensus | Micro Focus International PLC Sponsored ADR Quote
Shares of the company have yielded 46.2%, year to date.
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