The emergence of the COVID-19 pandemic earlier this year has changed everything from how we live to how we work, and everything in between. Remote work and video conferencing have combined to cause a noticeable acceleration in the adoption of cloud computing, a trend that was already underway.
When the discussion turns to the cloud, Amazon (NASDAQ: AMZN)With its Amazon Web Services (AWS), it invariably dominates the conversation as the pioneer and still leader in space. There’s no doubt it’s still a great place for investors to strive for the cloud computing revolution as AWS revenue grew more than 36% in 2019.
However, the opportunities do not stop there, as cloud computing refers to a wide range of software and services that can be provided remotely. And this massive multi-year digital transformation is just beginning.
Let’s take a look at three cloud areas and identify a hassle-free stock opportunity from each.
Image source: Getty Images.
1. Twilio: a platform dynamo as a service
In its simplest terms, a platform-as-a-service company provides a cloud-based framework for developers, giving them all the resources they need to create applications. This includes servers, storage and networks that can be managed remotely.
As work at home and remotely became the order of the day, it also became more important than ever that businesses be able to communicate with their customers, particularly those who use apps, from food delivery to transportation, from Password is reset to customer service and everything in between.
That is where Twilio (NYSE: TWLO) enters. The company provides the building blocks that allow developers to include the company’s communication technology in their applications, allowing them to seamlessly integrate messaging systems, all of which can be accomplished in a matter of hours, where they previously took weeks.
The company has a network of 29 cloud data centers in nine geographic regions serving developers in 180 countries. Twilio’s growing customer list, which numbered more than 190,000 at the last count, grew 23% in the first quarter and continued to expand beyond our borders. And 28% of its revenue now comes from international markets, increasing from 24% in 2018.
The proof is in the pudding. Twilio’s revenue grew 57% year-over-year in the first quarter, while its dollar-based net expansion rate of 143% (its highest level since late 2018) shows that once customers are on board, not only do they stay, but they tend to expand their spending over time.
As the need for in-app communication continues to grow, this will no doubt continue to expand the demand for Twilio’s services.
Image source: Getty Images.
2. Microsoft: a leader in infrastructure as a service
Infrastructure as a service is Amazon’s pioneering industry, making data center services (such as storage, networking, computing, and security) available as needed.
Microsoft (NASDAQ: MSFT) It has long followed AWS in space, but its Azure cloud computing offering has been closing the gap by growing at a faster rate. As an example, in the first calendar quarter of 2020, AWS revenue grew 33%, while Azure grew 59%.
But that’s not the only tool in Microsoft’s cheat bag. The company also offers a number of other services through the cloud, such as Microsoft 365, Teams video conferencing software, Windows virtual desktop, and Dynamics accounting software, to name a few.
The diversity of Microsoft’s business also makes it attractive. It has exposure to consumer markets and business products (such as Xbox games and its professional LinkedIn network) in addition to its commercial and personal software and its rapidly growing cloud segments.
That strength was fully shown in Microsoft’s fiscal fourth quarter, which ended June 30. Even in the face of the pandemic, revenue grew 13% year-over-year, and each of its business segments contributed to better-than-expected performance. Azure grew 47%, while Xbox increased 65%, driven by the remote work economy and the stay-at-home economy.
This broad assortment of businesses and its high-growth cloud segment make Microsoft an attractive addition to any portfolio.
Image source: Getty Images.
3. Adobe: One of the original providers of software as a service.
As the name implies, software as a service enables companies and consumers to rent software instead of buying and accessing it via the cloud. Although the concept is common today, it was not so in 2012 when Adobe (NASDAQ: ADBE) It made the radical decision to change the packaged physical software disks to scale down its creative software toolkit through a cloud-based subscription model.
The rest, as they say, is history. No longer content with just offering your creative software, Adobe has a wide range of products including marketing services, customer relationship management and analytics tools. In recent years, the company has made several major acquisitions, pushing it further into marketing and even e-commerce.
Adobe has produced record revenues that have grown in the past. 21 consecutive quarters. In the second quarter, revenue grew 14% year-over-year, a slowdown in recent growth, but impressive nonetheless, considering the economic environment generated by the pandemic. The bottom line grew at an even faster rate, with operating income increasing 35%.
The rapid transition to remote work put several of Adobe’s companies front and center. The demand for digital documents increased, with the use of Adobe PDF services rising 40% sequentially, while the number of shared documents in Acrobat increased 50% year-over-year. The company also experienced accelerated adoption of Adobe Sign, its electronic signature solution, which has soared 175% so far this year. Adobe Reader installations increased 43%, while Adobe Scan installations increased 66%.
This illustrates the broad scope of Adobe’s cloud-based offerings, and strong demand should continue as long as the need for remote work continues.
Epilogue
YCharts data.
The global cloud computing market is expected to grow at a compound annual rate of nearly 19% in the coming years, reaching $ 761 billion by 2027, according to a Fortune Business Insights report. Each of these companies is a leader in its respective category, giving investors an excellent opportunity to take advantage of the accelerated shift to the cloud.
If you’re looking for evidence of the market potential of these cloud innovators, look no further than results so far this year. Each company has overcome so much S&P 500 and the NASDAQ compound and hit them by a wide margin.
