The SaaS industry is poised for significant growth as enterprises invest heavily in digital transformation, driving demand for cloud-based software services that have supplanted traditional software applications. Therefore, investors could consider investing in SaaS stocks such as Twilio Inc. (TWLO), Smartsheet Inc. (SMAR), and Informatica Inc. (INFA), given their strong growth potential.
SaaS is leading in the cloud computing market because of its versatility, scalability, automatic updates, ease of use, adaptability, collaborative features, and strong security. Gartner forecasts a 20% growth in SaaS spending, reaching $247.2 billion in 2024.
Consequently, despite market fluctuations, database and customer experience software are expected to see the quickest growth. By 2028, the software market is forecasted to reach $858.10 billion, with a 5.3% CAGR from 2024 to 2028.
Furthermore, this year, AI integration in SaaS is revolutionizing industries. Vertical SaaS meets specific sector requirements, while data management through DaaS and iPaaS improves operations and connectivity. This dynamic and evolving SaaS landscape is poised for growth and innovation, with the global SaaS market expected to grow at a CAGR of 6.2%, reaching $325.84 billion by 2028.
Now, let's take a closer look at the fundamentals of the Software – SAAS stocks mentioned above, beginning with the third choice.
Stock #3: Twilio Inc. (TWLO)
TWLO and its subsidiaries provide customer engagement platform solutions in the United States and internationally. It operates through two segments, Twilio Communications and Twilio Segment.
On June 5, 2024, TWLO announced the launch of Linked Audiences and the Segment Data Graph, enhancing Twilio Segment’s interoperability with data platforms and warehouses. These new features allow businesses to build audiences and enrich customer profiles with data, improving real-time marketing and AI model training.
On March 27, 2024, TWLO announced the launch of Unified Profiles and Agent Copilot within Twilio Flex, combining customer data and AI to enhance productivity and engagement. These innovations enable deeper insights into customer behaviors and preferences for personalized interactions.
TWLO’s revenue grew at a CAGR of 28.3% over the past three years. Likewise, its levered FCF grew at a CAGR of 40.3% over the past three years.
In terms of the trailing-12-month gross profit margin, TWLO’s 50.02% is marginally higher than the 49.69% industry average. Similarly, its 18.27% trailing-12-month levered FCF margin is 80.7% higher than the 10.11% industry average.
TWLO’s revenue for the fiscal first quarter ended March 31, 2024, grew 4% year-over-year to $1.05 billion. It reported a non-GAAP income from operations of $159.61 million, up 53.8% from the prior year’s quarter.
Additionally, the company’s non-GAAP net income attributable to common stockholders came in at $146.34 million, or $0.80 per share, up 65.8% and 70.2% year-over-year, respectively.
Street expects TWLO’s EPS and revenue for the quarter ending June 30, 2024, to increase 29.8% and 1.8% year-over-year to $0.70 and $1.06 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has declined 6% to close the last trading session at $54.72.
TWLO’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #7 out of 19 stocks in the A-rated Software – SAAS industry. It has a B grade for Growth, Value, and Sentiment. Click here to see TWLO’s Momentum, Stability, and Quality ratings.
Stock #2: Smartsheet Inc. (SMAR)
SMAR provides an enterprise platform to plan, capture, manage, automate, and report on work for teams and organizations.
SMAR’s Total Assets grew at a CAGR of 13.4% over the past three years. Similarly, its revenue grew at a CAGR of 33.9% during the same period.
In terms of the trailing-12-month levered FCF margin, SMAR’s 28.54% is 182.4% higher than the 10.11% industry average. Likewise, its 81.14% trailing-12-month gross profit margin is 63.3% higher than the 49.69% industry average. Additionally, its 0.83x trailing-12-month asset turnover ratio is 34.6% higher than the industry average of 0.61x.
For the first quarter, which ended April 30, 2024, SMAR’s total revenues rose 19.6% year-over-year to $262.98 million. Its non-GAAP operating income came in at $42.09 million, up 84.6% over the prior-year quarter.
For the same quarter, the company’s non-GAAP net income rose 77.1% from the year-ago value to $44.36 million. Furthermore, its non-GAAP EPS came in at $0.32, representing an increase of 77.8% year-over-year.
Analysts expect SMAR’s EPS and revenue for the quarter ending July 31, 2024, to increase 83.7% and 16.4% year-over-year to $0.29 and $274.25 million, respectively. It surpassed the Street EPS and revenue estimates in each of the trailing four quarters. SMAR’s stock has gained 12.3% over the past year to close the last trading session at $42.69.
SMAR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It is ranked #6 in the same industry. It has an A grade for Growth and Sentiment and a B for Quality. To see SMAR’s Value, Momentum, and Stability ratings, click here.
Stock #1: Informatica Inc. (INFA)
INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at enterprise scale in the United States.
On June 10, 2024, INFA announced new product innovations and an enterprise-grade Generative AI blueprint for Databricks, including full Unity Catalog support for its Intelligent Data Management Cloud platform.
INFA also introduced native Databricks SQL ELT support and a free Data Integration Service via Databricks Partner Connect.
On June 4, 2024, INFA announced new generative AI and Snowflake native app offerings, including Native SQL ELT support for Cortex AI Functions, Enterprise Data Integrator (EDI), and Cloud Data Access Management (CDAM) for Snowflake. These enhancements aim to streamline data integration and governance on the Snowflake AI Data Cloud.
INFA’s revenue grew at a CAGR of 6.3% over the past three years, and its EBIT grew at a CAGR of 16.5% during the same period.
In terms of the trailing-12-month EBIT margin, INFA’s 6.40% is 34.2% higher than the 4.77% industry average. Its 15.70% trailing-12-month EBITDA margin is 61.6% higher than the industry average of 9.71%. Also, its 79.72% trailing-12-month gross profit margin is 60.4% higher than the industry average of 49.69%.
INFA’s total revenues for the fiscal first quarter that ended March 31, 2024, increased 6.3% year-over-year to $388.61 million. Its non-GAAP net income rose 55.1% from the year-ago quarter to $69.22 million. INFA’s non-GAAP net income per share grew 46.7% year-over-year to $0.22. In addition, its adjusted EBITDA stood at $111.47 million, up 25.2% over the prior-year quarter.
For the quarter ending June 30, 2024, INFA’s EPS is expected to increase 28.5% year-over-year to $0.22. Its revenue for the same quarter is expected to rise 7.1% year-over-year to $402.59 million. INFA surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 71.9% to close the last trading session at $30.60.
INFA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. Within the Software – SAAS industry, it is ranked #5. To access the additional POWR Ratings for INFA for Value, Momentum, and Stability, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TWLO shares were trading at $54.90 per share on Monday morning, up $0.18 (+0.33%). Year-to-date, TWLO has declined -27.64%, versus a 15.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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