Recently the stock market in the US has been volatile. Increasingly the share prices of some of the biggest tech winners from 2020 have been hit hard.
However, fundamentally, nothing has changed about their businesses. That’s particularly true of Software-as-a-Service (SaaS) stocks, one of the most in-demand areas of technology.
For long-term investors, we need to remember that we are investing in the future cash flows of these high-growth technology companies.
With that, here are three SaaS stocks that I think investors can buy and hold forever.
It’s perhaps not the first name you think of in the SaaS space but creativity software provider Adobe Inc (NASDAQ: ADBE) is one of the best-run tech stocks around.
In its latest first-quarter fiscal year 2021 earnings report, Adobe reported record revenue of US$3.91 billion, which was up 26% year-on-year.
Adobe’s digital media segment, one of the key growth drivers, saw revenue hit US$2.86 billion – up 32% year-on-year.
One of the great things about SaaS stocks is the potential for that recurring revenue stream as clients find the service a necessity.
Clearly, with Adobe, the company is doing something right. Its digital media annualized recurring revenue (ARR) increased by US$435 million over the quarter to hit US$10.69 billion as at the end of the period (for the three months ended 5 March 2021).
As the software provider moves into new areas, including digital agreements, while growing its existing user base for its Creative Cloud product, Adobe has a bright future ahead of it.
For anyone starting an online storefront, Shopify Inc (NYSE: SHOP) and the services it offers are almost unavoidable.
Shopify offers users the latest solutions to setting up a digital store, from marketing to payments processing and fulfillment.
As the world of retail moves online, Shopify has been one of the biggest winners. Obviously, the pandemic turbocharged that transition.
Even so, the company’s latest earnings were impressive. First-quarter 2021 revenue came in at US$988.6 million, up a whopping 110% year-on-year and blowing past consensus analyst expectations of around US$880 million in sales.
As e-commerce continues to thrive, Shopify is one stock which will continue to attract new merchants to its must-have platform.
3. Zoom Video Communications
Finally, we have the company which has come to embody the work-from-home life during Covid-19; Zoom Video Communications Inc (NASDAQ: ZM).
Although many of us may be suffering from “Zoom fatigue”, the video conferencing provider isn’t going to be going anywhere when the pandemic eventually winds down.
That’s because Zoom has delivered a superior product experience that, in many peoples’ own words, “just works”.
How could it have succeeded so wildly when there are so called “similar” products such as Microsoft Corporation’s (NASDAQ: MST) Teams product and Cisco Systems Inc’s (NASDAQ: CSCO) WebEx?
It’s because it’s a cloud-native product that is also expanding into other areas. The numbers are self-explanatory.
Zoom’s revenue growth in its fourth-quarter fiscal year 2021 was US$882 million, up 369% year-on-year.
More impressively, it is growing its paying customer base rapidly, with the number of Zoom customers generating over US$100,000 in trailing 12-month revenue soaring to 1,644 – up 156% year-on-year.
As we move back to a “hybrid” work model, Zoom will remain a part of everyday life. Finally, with the firm’s move into the inefficient telephony market, through Zoom Phone, it is continuing to look at new ways to expand its market.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Shopify Inc and Zoom Video Communications Inc.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.