3 SaaS stocks to Buy and Hold in 2020

Author: Finscreener

Estimated read time: 4 minutes

Publication date: 24th Aug 2020 14:03 GMT+1


The current scenario has been quite a catalyst for the growth of SaaS or software-as-a-service companies. Technology will now play a pivotal role in enterprise operations particularly in the communications field. Let us take a look at three attractive SaaS companies that are worth investing.

 

ServiceNow: Unleashing the power of organic growth

ServiceNow (NYSE: NOW), has become one of the best-performing SaaS companies ever since it went public and has crushed the S&P 500 and NASDAQ since its IPO back in 2012. The company’s cloud-based software automates IT and employee workflow. The stock has surged nearly 57% year-to date as major customers opted for its software solutions amid the COVID-19 pandemic.

One of the unique propositions of ServiceNow is that it has grown solely on the back of its in-house software and not taken the inorganic route. McDermott said “One thing we’re jealously protective of here is our engineering pride.” He further added, “Agility is our competitive advantage.”

ServiceNow has been sharp enough to recognize the market opportunity and launched new apps focussed on developing a secure workplace. This includes automatic cleaning tasks as well as contact tracing of employees.

Its latest Q2 revenue and earnings released a few weeks ago surpassed market expectations. Its customer renewal rate was enviably high at 97%. The management raised its subscription revenue outlook to between $4.185 billion and $4.2 billion in 2020. So far, the stock has outperformed the market and investors can be hopeful of a similar run in the medium to long run.

 

Splunk: A shift in revenue model unlocked huge opportunities

Splunk (NASDAQ: SPLK), a data analytics company has begun unlocking its true potential in the COVID-19 landscape. Amid this pandemic, the customers of Splunk, both existing and new, are shifting to the cloud at an astonishingly rapid pace. The company’s upfront licence revenue has been replaced by a recurring cloud-based model.

Splunk’s recurring revenue model is growing at an annual rate of 50%. What works in the company’s favor is big names like Zoom as its customer. Besides this, strategic alliances with Google Cloud and Amazon Web Services further enhance its standing.

The company has also purchased a few small firms to strengthen its position. It acquired cloud monitoring company, SignalFX, a software monitoring start-up, Omnition, as well as Streamlio, a real-time data streaming company.

Splunk has been posting revenue growth for the past four quarters. However, it has been posting an operating loss, due to a change in the way it reports profits after it transitioned towards a SaaS model. The Splunk stock already hit an all-time high at $213.26 in July. Year-to-date, the stock has jumped 29% and it remains a top bet in the upcoming decade.

 

Twilio: Setting a new benchmark in cloud communication

The shares of Twilio (NYSE: TWLO), a cloud-based communications platform, has been on fire with a whopping YTD growth of 150% amid the growing opportunities in the COVID-19 pandemic. The company aims to seamlessly integrate communications messages like text, email, voice, or video, into existing software tools.

It has an easily accessible interface and a robust network of cloud data centers across the globe. These are some of the unique propositions that led to the company’s stellar organic revenue growth over the years.

For the second quarter, Twilio’s total revenue climbed 46% YoY to $400.8 million, while its active customer account jumped 24% to reach 200,000. Not just this, its non-GAAP adjusted net income also more than doubled to over $14 million.

By now it is evident that COVID-19 is bringing about an enormous digital transformation and change the way decision-making works. A 540% jump in the usage of Twilio’s video tools during the pandemic illustrates this fact.

The company estimates that the annual total addressable market (TAM) of its programmable communications will be $66 billion. With a TTM revenue of just over $1 billion, Twilio clearly has just seen the tip of the iceberg. The growth opportunities are huge.


Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.com. The observations he makes are his own and are not intended as investment or trading advice.