Software-as-a-service (SaaS) companies have been hit hard since November 2021, when repricing of the tech sector commenced. Year-to-date (YTD), the Nasdaq Composite which houses most, if not all, SaaS companies, lost 15%, but this doesn’t tell the entire story.
Smaller tech companies are down 30-40%, which is not properly reflected in the Composite since large tech companies make up roughly 20% of the index, “shielding” it from more volatile swings as the tech giants did not lose too much momentum in 2022.
With challenging market conditions, the earnings season for SaaS companies for 2022 is about to begin. Here are three high-quality companies that should ride out the market’s volatility in 2022.
Picks for you
ServiceNow (NYSE: NOW)
ServiceNow’s annual revenue grew between 2016 and 2021 at 33% to almost $5.8 billion, benefiting from the growing demand for digital workflow services, especially during Covid lockdowns. The company forecasts that it will be growing its revenue by at least 20% year-on-year (YoY) for the next five years.
The company should benefit from the continued IT spending environment with more workers and companies introducing remote and/or hybrid work. Earnings for Q1 have been announced for April 27; durability of growth will be key to watch, which then could influence the stock price.
The stock has moved down sharply to begin the year and is currently trading below the 20 and 50-day Simple Moving Averages (SMAs). The price has bounced twice off the lows, around $490 looking to move up. If there is a positive earnings beat and predictions, the price might move up to challenge the resistance around the 200-day SMA.
Analysts are in agreement when it comes to the sentiment giving the stock a strong buy. The average next 12-months price they see is $674.24, which represents a potential upside of 32.90% from the current trading price of $507.33.
ZoomInfo Technologies (NASDAQ: ZI)
The company grew its revenue by 57% last year, which offers a nice setup for earnings in 2022, which are scheduled to be announced for Q1 on May 2nd. Offering a cloud-based, go-to-market intelligence platform, the company also benefited from the tailwinds of remote and hybrid work.
With smart acquisitions, the company raised its total addressable market (TAM) to well over $70 billion, going from strength to strength. Given the increased velocity of earnings, the company could provide better than expected guidance which should bring a re-rating of the shares.
In late January 2022, the share price hit its low point and bounced upwards, trading in an ascending channel. The price is still far from the November 2021 highs, but it’s holding solidly wedged between the 20 and 50-day SMAs. Trading volume was steady throughout the month, and some sideways trading could be expected until earnings.
On Wall Street, the consensus is an almost unanimous strong buy, with an average next 12-month price predicted at $73.50. This means that the price could potentially shoot up 33.64% from the current trading price of $55.
UserTesting (NYSE: USER)
Operating a SaaS platform that enables enterprises to learn about customer experiences with the products they engage, USER is looking to upend the market. The company listed on NYSE fairly recently, but the market for customer experiences is set to explode by 17.9% annually possibly benefiting the share price in the future.
For the full year 2021, the company grew its revenue by 45%, having a 76% increase in international revenue which comprises 20% of total revenue. It is reasonable to expect the company to keep putting up stellar numbers and possibly grow above industry standards since UserTesting is still in the investing stage of its growth.
The stock performed abysmally to start the year, falling off straight down, reaching a low in February. After taking a nosedive, the stock recovered and is currently trading in an ascending channel creating higher highs and higher lows which could signal a bullish development of the stock price.
Analysts who cover the stock give it a strong buy, predicting the next 12-months average price to reach $14. This predicted price would represent a potential upside of 34.36% from the current trading price of $10.42. It will be interesting to track the development of the company with possible price increases for the stock in the near future.
The bottom line
As businesses look to embrace new ways of working with remote becoming more popular, tools that these three companies enable everyone to be on the same page no matter where they are working from.
Prices of the stocks have been hit hard, but the business prospects remain stable and intact. For investors not frightened by the punishment tech stocks have received in 2022, these three companies could spice up any portfolio looking to have more exposure to high-growth companies.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
