3 Cloud-Based Software Stocks With Powerful Long-Term Growth Potential
Investing.com | Feb 20, 2020 10:44AM ET
The tech-heavy NASDAQ Composite is trading at its highest level on record. Beyond Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), there is an important industry segment in this space that's been leading the charge higher this year: cloud-based software stocks.
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Three leading names each released strong quarterly earnings reports earlier this month and display powerful potential for long-term growth. They might be worth keeping in focus:
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Shopify (NYSE:SHOP), the booming e-commerce software platform we highlighted ahead of their results earlier this month, topped consensus estimates for EPS and revenue when it posted fourth-quarter earnings on Feb. 12. The company also gave upbeat guidance for the year ahead, driving its stock to all-time highs.
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The Canadian-based firm, which helps merchants set up online retail shops and manage their brands, reported adjusted EPS of 47 cents, up a whopping 80% from EPS of 26 cents in the same quarter a year earlier. Revenue jumped 47% year-over-year to $505.16 million, which was higher than the estimated $481.93 million.
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Gross merchandise volume, a key metric used in the e-commerce sector to measure transaction volumes, rose 47% to $20.6 billion, easily surpassing estimates of $20.0 billion.
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Annual guidance for Shopify was also bullish. It forecast 2020 revenue in a range of $2.13 billion to $2.16 billion, well ahead of consensus estimates of $2.11 billion.
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Shopify’s stock has been on a tear so far in 2020, with shares up about 37% year-to-date. By comparison, the S&P 500 advanced just 5% year-to-date. Shares ended at $543.21 on Tuesday, not far from their all-time high of $593.89 with a market cap of $63.2 billion.
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Despite robust gains, we anticipate the positive trend in Shopify to continue, thanks to its status as one of the leading names in the e-commerce software sector with more than 1 million merchants across 175 countries on its e-commerce platform.
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Paylocity (NASDAQ:PCTY), the leading provider of cloud-based payroll and human capital management (HCM) software solutions which we as one of our top picks for 2020, beat estimates when it reported earnings for its fiscal second-quarter on Feb. 4. The impressive results prompted Paylocity to boost its 2020 full-year outlook thanks to booming demand for its cloud-based HCM software-as-a-service.
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The company, whose services are used to process payroll, administer human resources and recruit talent, said it earned 36 cents a share for the period ended Dec. 31, beating forecasts for EPS of 29 cents. This represents a year-over-year increase of 56% from earnings per share a year ago, which were of 23 cents. Revenue, meanwhile, jumped 23% from the year-ago period to $132.37 million, beating expectations for sales of $130.22 million.
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"Our sales team had a very strong quarter throughout our target market, continuing the sales momentum from Q1, and are off to their best start in quite some time," Chief Executive Steve Beauchamp said in a news release.
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Paylocity's outlook for the current quarter and for full-year 2020 came in above Wall Street targets. The Illinois-based HR software provider said it expects revenue in a range between $168.5 million and $169.5 million for its fiscal third quarter, versus the consensus calls of $167.4 million.
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For the full-year, Paylocity projects revenue in a range between $572.5 million to $573.5 million, up from $568 million.
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After reaching an all-time high of $150.35 in yesterday's session, Paylocity shares, closed at $149.73 last night, up 24% year-to-date, with a valuation of $8 billion.
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The dramatic rally looks set to continue, with investors encouraged by the growing adoption of the enterprise-cloud company’s human resource solutions among small and medium-sized organizations.
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Twilio (NYSE:TWLO), a cloud communications platform specialist, crushed expectations when it reported fourth-quarter results on Feb. 5. However, the San Francisco-based company gave a disappointing forecast for the year ahead, reflecting the software maker’s rising costs in its efforts to expand.
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Twilio reported adjusted EPS of 4 cents, beating estimates for EPS of 1 cent. Revenue rose to $331.22 million, up an impressive 62% from the same quarter a year earlier.
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Active customer accounts also maintained a torrid pace of growth, surging nearly 178% year-over-year to 179,000 by the end of the quarter. Results included SendGrid, which Twilio acquired in 2018 for $3 billion. CEO Jeff Lawson stated:
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“Twilio’s 62% year-over-year total revenue growth in the fourth quarter capped off a spectacular year in which we delivered more than $1.13 billion in revenue, welcomed SendGrid to the Twilio family, and added more than 1,400 new employees."
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For the current quarter ending in March, Wall Street was predicting adjusted EPS of 4 cents a share, while the software maker anticipates an adjusted loss of 9 cents to 11 cents a share. Twilio also projects revenue to be $335 million to $338 million, which would mark a year-over-year increase of 45%.
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For full-year 2020, the cloud communications platform provider forecast an adjusted loss of 14 cents to 20 cents per share on revenue in a range of $1.47 billion to $1.49 billion, indicating growth of 30-31%.
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While the full-year fiscal 2020 guidance came in on the soft side, Twilio remains in a prime position to be a leading name in the cloud communications space in the years ahead.
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Shares closed at $128.06 yesterday, just below a six-month high of $133.00 reached on Feb. 5. The stock is up 30% so far this year with a valuation of$17.5 billion.
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