For the past decade, cloud computing has been a high-performance investment topic. But it has been this current economic and health crisis that has shown how important cloud services are. With businesses and consumers grappling with shelter requests in place, it is these digital systems that have played a crucial role in keeping the wheels moving.
Therefore, I believe that the winds that fill the sails of the cloud computing industry are far from diminishing. Global spending was expected to be a double-digit percentage growth story before coronavirus, and the pandemic is only increasing demand, making cloud stocks an annual spending opportunity that now amounts to hundreds of billions. I like cloud stocks as the 2020s progress. Three that I already own and that I’m looking to buy more in July are salesforce.com (NYSE: CRM), CrowdStrike Holdings (NASDAQ: CRWD)and Anaplan (NYSE: PLAN).
An entire ecosystem built around customer engagement
Salesforce has moved from specialized software as a customer relationship management service to a massive ecosystem of relationship-focused services. In this digital age, human interaction can become downright impersonal. But Salesforce is doing its part to avoid that when it comes to business and customer relationships.
Sure, the entire business model arises from digital data. Salesforce prides itself on providing actionable information to organizations based on information collected from their customers. But through dozens of acquisitions and in-house development, the company’s platform has become a torch for digital transformation that puts customers first.
The company has started its efforts in overdrive during the current blockade. Announced a new video and chat tool embedded directly in its software, expanded its independent adviser market with Torchlite to help companies manage today’s business environment, in partnership with Siemens (OTC: SIEG.Y) to create contactless entry systems for office and workforce management, announced a new suite of tools from the MuleSoft subsidiary to help healthcare providers make better use of patient data, and invested $ 100 million in remote service technician Tanium. Salesforce has been busy the past few months helping users of its platform take a quick turn.
But why Salesforce’s actions right now? After all, the company forecast a slowdown in revenue growth for this year, with a guidance for revenue implying that the company will drop below a growth rate of 20% year-over-year (17% is the forecast. ) for the first time. On? Perhaps. But the fact that this massive cloud software company still hopes to maintain double-digit percentage growth is remarkable. Also, he has a habit of being unpromising and overly devoted. Either way, after the last quarterly update, there was more than enough positive in the report to keep me optimistic about Salesforce’s outlook for the next decade.
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Keeping devices safe as the workforce disperses
Endpoint security is nothing new. Every time there is a connection between a network and a device, a potential path opens up that can be exploited by those with dire intentions. Traditionally, that pathway could be closed as many organizations restricted access to their systems from within an office building. With many companies migrating operations to a remote cloud over the past decade, a new form of security that also resides in the cloud was required to secure endpoints accessing the network.
But then COVID-19 happened, and the workforce suddenly dispersed to millions of homes. It has been a not-so-proverbial torpedo alongside traditional safety thinking. With so many people now accessing networks and workflows from an Internet connection and a home device, cloud cybersecurity has become essential. CrowdStrike, which was already benefiting from the migration before, has exploded. According to a report by tech researcher IDC, CrowdStrike’s market share cut almost doubled in the past two years, while the three largest slices of the pie fell.
Specifically, the company’s revenue increased 85% more in the first quarter of 2020 to $ 178 million, and it sees full-year revenue from $ 761 million to $ 773 million (roughly a 59% increase from 2019). In a very short period, this has become one of the biggest cybersecurity games, and it has a lot of momentum on its side as legacy vendors were still trying to adapt to changing times.
Even when the expected one-year results are used, this stock is traded for a very expensive income of 22.8 times. But in addition to steamy growth, a premium is guaranteed. This is a highly profitable team with a free cash flow margin (income minus operating cash and capital expenses) that reaches 49% during the first quarter. The margin is more than likely to moderate later this year, but nonetheless speaks to how powerful and lucrative a cloud computing subscription-based business model can be.
Connecting the dots to make better decisions
CrowdStrike is one of those companies that takes a big hit from the current state of world affairs. But like Salesforce, many cloud companies report an expected pause in spending among customers, albeit a temporary one. Anaplan is one of those cloud vendors that predicts some hurdles ahead.
The company is a pioneer in the “Connected Planning” industry as it tries to disrupt offers from former software vendors such as IBM (NYSE: IBM), Oracle (NYSE: ORCL)and SAP (NYSE: SAP)and it also has some overlap with services offered by larger peers Workday (NASDAQ: WEDNESDAY). But it’s a large segment of the software field, and Anaplan is attacking it with its artificially intelligent, cloud-native software that gathers all the data an organization has to help drive better decision-making.
After expanding 45% in 2019, its first quarter of 2020 got off to a much slower start. Revenue rose 37% to $ 104 million, management cut 2020 expectations for the full year due to lack of visibility in closing new deals, and second quarter guidance calls for “just” 22% growth year after year.
On the one hand, a slowdown is to be expected given the belt adjustment at this time. However, he talks about Anaplan’s positioning that it can maintain momentum even in the midst of the crisis. For my part, I believe that corporate planning will be in greater demand than ever as the effects of the pandemic slowly begin to diminish. Whether it’s sales, budgets, or special project forecasts, Anaplan’s ability to help teams in different departments of an organization, and at remote locations, to work together rather than in individual silos, will be an important feature after the coronavirus. Shares trade for 12.2 times one-year revenue, hardly cheap, but not unreasonable given the billions of dollars spent on planning software each year.
