The software market is rapidly on the rise with the introduction of various emerging technologies, emphasizing companies' operating efficiency and productivity. Also, automation demands and the growing need for data management opens new avenues for the segment.
Given the industry’s strong outlook, investors could consider investing in quality software stocks Datadog, Inc. (DDOG), Dynatrace, Inc. (DT), and Asana, Inc. (ASAN).
With rapid evolution in technologies, more and more enterprises and organization are leaning towards updated software and applications to optimize their operations, improve efficiency, and enhance customer experiences, leading to surging investments and spending in the market.
To accelerate the growth of tech industry, recent funding round of about $504 million in implementation grants to 12 Tech Hubs was announced by the Biden-Harris Administration. The funding is to scale up the production of critical technologies, create more jobs in innovative industries, and strengthen the U.S. economic competitiveness and national security.
According to the latest forecast by Gartner, worldwide IT spending is expected to total $5.26 trillion in 2024, representing an increase of 7.5% from 2023. Meanwhile, spending on software is expected to grow at 12.6% in 2024 to hit around $1.10 trillion.
Worldwide software market revenue is anticipated to reach $704.10 billion in 2024 and grow at a CAGR of 5%, resulting in a market volume of $898.90 billion by 2029. Also, in the current year, most revenue is expected to be generated in the United States of $363.40 billion.
Fueled by the increasing demand for business software, the rising automation of business processes across end-use industries like retail, manufacturing, healthcare, and transportation, the business software and services market is booming. The market is expected to be valued at $1.15 trillion by 2030, exhibiting growth at a CAGR of 11.9%.
Given the industry’s robust outlook, investing in quality software stocks DDOG, ST, and ASAN could be wise in this year.
Let’s discuss the fundamentals of these stocks in detail:
Datadog, Inc. (DDOG)
DDOG operates an observability and security platform for cloud applications internationally. Its products include infrastructure and application performance monitoring, log management, digital experience monitoring, continuous profiler, database monitoring, data streams and universal service monitoring.
On June 26, DDOG launched Datadog Kubernetes Autoscaling, a set of capabilities that intelligently automates resource optimization and can automatically scale customers’ Kubernetes environments based on real-time and historical utilization metrics. With this DDOG became the first observability vendor to allow its customers to make changes to their Kubernetes environments.
On the same day, DDOG unveiled Log Workspaces, also a suite of capabilities in a powerful, collaborative space enabling analysts and engineers from all teams in an organization to connect logs and other datasets, and build multi-stage queries to answer complex questions on business, security and application issues of sophisticated analytics.
The company also announced new additions to its security product portfolio which includes Agentless Scanning, Data Security and Code Security allowing DevOps and security teams to easily secure their code, cloud environments and production applications.
For the second quarter that ended June 30, 2024, DDOG’s revenue rose 26.6% year-over-year to $645.28 million. Its non-GAAP gross profit grew 27.9% from the year-ago value to $529.52 million. The company’s non-GAAP operating income of $157.54 million reflects increase of 48% from the prior year’s quarter.
Furthermore, the company’s non-GAAP net income after non-GAAP tax adjustments came in at $152.96 million and $0.43 per share, up 50.8% and 48.3% year-over-year, respectively. Also, its free cash flow increased 1.4% year-over-year to $143.78 million.
The company provided its third quarter and full year 2024 outlook. DDOG expects revenue between $660 million and $664 million and non-GAAP operating income between $146 million and $150 million. Also, its non-GAAP net income per share is expected to be $0.38 - $0.40.
For the full year 2024, the company expect its revenue to range from $2.62 billion to $2.63 billion. DDOG expect non-GAAP operating income between $620 million and $630 million. And non-GAAP net income per share between $1.62 and $1.66.
Analysts expect DDOG’s revenue for the fiscal year (ending December 2024) to increase 23.7% year-over-year to $2.63 billion and its EPS for the same period is expected to grow 26.8% year-over-year to $1.67. Furthermore, the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of DDOG have gained 24.3% over the past year to close the last trading session at $117.74.
DDOG’s bright prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
DDOG has an A grade for Growth. It also has a B grade for Quality and Sentiment. It is ranked #15 out of 39 stocks in the B-rated Software - Business industry.
To check other POWR Ratings of DDOG for Value, Momentum, and Stability, click here.
Dynatrace, Inc. (DT)
DT offers a security platform for multicloud environments internationally. The company operates Dynatrace which is a security platform providing application and microservices monitoring, runtime application security, infrastructure monitoring, log management and analytics, digital experience monitoring, digital business analytics, and cloud automation.
On July 1, DT integrated its observability platform with AWS Application Migration Service (MGN). With this, DT becomes the first AWS partner to integrate with AWS application migration service. Organizations seeking migration of their workloads to the AWS cloud can install and deploy DT for their observability needs, facilitating smooth end-user experiences.
DT’s integration with AWS MGN enables organizations to use the company’s platform for optimizing performance, managing costs, understanding user experiences, and addressing compliance and security.
On June 13, DT combined its Dynatrace platform with the network-derived intelligence and insights from the Gigamon Deep Observability Pipeline, Trace3 which offers customers a deep observability solution that brings a whole new level of visibility across hybrid cloud infrastructure.
During the first quarter that ended June 30, 2024, DT's total revenue increased 19.9% year-over-year to $399.22 million. Its non-GAAP income from operations grew 24.1% from the year-ago value to $114.25 million. The company’s non-GAAP net income amounted $98.93 million and $0.33 per share, indicating growth of 25.1% and 22.2% year-over-year, respectively.
In addition, the company’s free cash flow rose 83.9% year-over-year to $227.38 million.
According to the company’s second quarter fiscal 2025 guidance, DT expects its total revenue to range from $404 million to $407 million and non-GAAP income from operations between $113 million and $116 million. It also expects non-GAAP net income of $96 million - $99 million and $0.32 - $0.33 per share.
Also, for the full year, the company expects total revenue between $1.64 billion and $1.66 billion. DT expect non-GAAP income from operations between to range between $459 million and $467 million. Further, its non-GAAP net income is projected to be $383 million - $392 million and $1.26 - $1.29 per share. And its free cash flow is set at $386 million - $398 million.
Analysts expect DT’s revenue and EPS for the second quarter (ending September 2024) to grow 15.5% and 4% year-over-year to $406.39 million and $0.32, respectively. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past month, the stock has surged 15.1% and 9% over the past year to close the last trading session at $50.53.
DT’s POWR Ratings reflect its robust outlook. DT has a B grade for Growth, Quality, and Sentiment. It is ranked #46 among 129 stocks within the Software - Application industry.
To see the other ratings of DT for Value, Stability, and Momentum, click here.
Asana, Inc. (ASAN)
ASAN operates a work management platform for individuals, team leads, and executives internationally. The company’s platform assist organizations to orchestrate work from daily tasks to cross-functional strategic initiatives, manage work across a portfolio of projects or workflows.
On June 5, ASAN unveiled Asana AI teammates to tackle complex workflows and elevate teamwork. This adaptable artificial intelligence collaborator help teams maximize their impact and achieve goals faster. Asana AI teammates, are built on ASAN’s Work Graph® data model, offering the ideal structure, visibility, and context for organizations to scale AI with confidence.
Asana AI teammates combines humans and AI to work together effortlessly by providing the necessary structure to link work and workflows to organizational goals.
Also, on March 19, ASAN launched new AI capabilities to empower IT leaders to drive intelligent transformation with the right data foundation, safeguards, and controls. Powered by Asana’s Work Graph® data model, these capabilities allow IT leaders to integrate their work data seamlessly, deploy AI safely, and surface executive-level reports and drive greater ROI.
For the first quarter that ended April 30, 2024, ASAN’s revenues increased 13.1% year-over-year to $172.45 million. The company’s non-GAAP gross profit grew 12.3% from the year-ago value to $154.94 million. Its net interest income and other income was $4.36 million for the quarter.
Furthermore, the company’s total assets stood at $978.17 million as of April 30, 2024, compared to $961.96 million as of January 31, 2024.
As per the company’s financial outlook, ASAN expects its revenues to range from $177 million to $178 million during the second quarter of fiscal 2025, reflecting 9% to 10% growth year-over-year.
Also, the company’s revenue is expected between $719 million and $724 million, representing year-over-year growth of 10% to 11% for the full year.
Analysts expect ASAN’s revenue for the second quarter (ended July 2024) to grow 9.4% year-over-year to $177.67 million. For the fiscal year (ending January 2025), the company’s revenue is expected to increase 10.8% year-over-year to $722.85 million. Moreover, the company topped the consensus EPS and revenue estimates in all four trailing quarters.
Over the past month, ASAN’s stock has plunged 2.3% to close the last trading session at $13.86.
ASAN’s sound fundamentals are reflected in its POWR Ratings. ASAN has a B grade for Quality. It is ranked #23 among the 39 stocks within the B-rated Software - Business industry.
To see the other ratings of ASAN for Momentum, Growth, Stability, Value, and Sentiment, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
DDOG shares were trading at $116.92 per share on Thursday afternoon, down $0.82 (-0.70%). Year-to-date, DDOG has declined -3.67%, versus a 17.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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