The software industry thrives on an ever-increasing appetite for cutting-edge solutions in data management, business automation, and cybersecurity. So, I think quality software stocks GoDaddy Inc. (GDDY), Qualys, Inc. (QLYS), and WM Technology, Inc. (MAPS) could offer investors an opportunity to diversify their portfolios.
The surge in enterprise data and the automation of business processes, especially in industries like retail, manufacturing, healthcare, and transportation, are anticipated to boost the demand for business software and services. Besides, advancements in smartphone applications are anticipated to further elevate the demand for software support and maintenance services.
According to a report by Grand View Research, the global business software and services market is expected to expand at 11.9% CAGR until 2030.
Moreover, cloud computing is becoming increasingly popular, especially in emerging economies where businesses seek to optimize digital operations. The diversity of the cloud's business application layer is expanding, with providers concentrating on boosting productivity through cloud-native features, artificial intelligence, and composability.
Hence, spending on Software as a Service (SaaS) is projected to increase by 17.9%, reaching $197 billion this year. The global Software-as-a-Service (SaaS) market is projected to reach $908.21 billion by 2030, growing at a CAGR of 18.7%.
Furthermore, the United States is witnessing substantial growth in its cybersecurity sector, driven by an escalating threat landscape and heightened digitization across diverse industries. The integration of revolutionary technologies such as AI and automation plays a pivotal role in cybersecurity, offering benefits like rapid threat detection and dynamic vulnerability analysis.
The global cybersecurity market is projected to grow at a 12.3% CAGR from 2023 to 2030.
With these favorable trends in mind, let's delve into the fundamentals of the three top tech stock picks.
GoDaddy Inc. (GDDY)
GDDY designs and develops cloud-based products and operates through two segments: Applications and Commerce and Core Platform. It offers applications products, including Websites + Marketing, a mobile-optimized online tool that enables customers to build websites and e-commerce-enabled online stores.
GDDY’s trailing-12-month EBIT and EBITDA margins of 13.22% and 17.56% are 176.4% and 94.2% higher than the industry averages of 4.78% and 9.04%.
On November 8, GDDY launched the GoDaddy 2023 Gift Guide, a curated selection of unique products from small businesses across the United States. The guide aims to make it convenient for shoppers to support small businesses and find one-of-a-kind gifts. Each featured business comes with its own inspirational story, emphasizing that by choosing items from the guide, customers not only support small enterprises but also contribute to creating meaningful memories during the season.
As of October 31, GDDY had repurchased 17.30 million shares of its common stock for an aggregate purchase price of $1.30 billion, with an average price per share of $72.85. Cumulatively, these repurchases represent an approximate 20% reduction in fully diluted shares from those outstanding at the inception of the current $4 billion buyback authorization.
GDDY’s total revenue increased 3.5% year-over-year to $1.07 billion in the fiscal third quarter that ended September 30, 2023. Its operating income rose 28.8% from the previous-year quarter to $167.10 million. Net income attributable to GDDY amounted to $130.70 million and $0.89 per share, up 31% and 41.3% from the year-ago quarter. Also, its non-GAAP normalized EBITDA grew 2.4% year-over-year to $296 million, and unlevered FCF increased 7.9% from the previous-year quarter to $320.10 million.
For the fiscal fourth quarter ending December 2023, GDDY aims for total revenue between $1.10 billion and $1.12 billion, reflecting a 6% year-over-year growth at the midpoint compared to the same quarter in the previous year.
The company anticipates around 13% growth in applications and commerce revenue, with core platform revenue expected to increase between 2% and 3%. It also raised its targeted NEBITDA margin to approximately 29%.
The consensus EPS estimate of $1.04 for the fiscal fourth quarter (ending December 2023) represents a 73.7% improvement year-over-year. The consensus revenue estimate of $1.10 billion for the current quarter represents a 5.8% increase from the same quarter last year.
The stock has gained 26.4% over the past six months to close the previous trading session at $88.24. It has returned 16.6% over the past month.
GDDY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
The stock also has a B grade for Growth, Quality, and Sentiment. Within the B-rated Software - Business industry, it is ranked #7 among 45 stocks.
Beyond the POWR Ratings stated above, we also have GDDY’s Value, Momentum, and Stability ratings. Get all GDDY ratings here.
Qualys, Inc. (QLYS)
QLYS provides cloud-based Information Technology (IT), security, and compliance solutions. It serves enterprises, government entities, and small and medium-sized businesses in various industries, including education, financial services, government, healthcare, insurance, and utilities.
QLYS’ trailing-12-month EBIT and EBITDA margins of 28.16% and 33.71% are 488.7% and 272.7% higher than the industry averages of 4.78% and 9.04%.
On October 31, 2023, QLYS made its VMDR TruRisk, FixIT, and ProtectIT capabilities available in AWS Marketplace, specifically tailored and priced for small-to-medium-sized businesses (SMBs) and small-to-medium enterprises (SMEs).
QLYS aims to assist SMBs and SMEs in optimizing their cybersecurity budgets by reducing cyber risk across their infrastructure and fostering business growth. This move allows users to consolidate their security solutions within AWS Marketplace for streamlined procurement and payment processes.
QLYS’ revenues increased 13.1% year-over-year to $142 million in the fiscal third quarter (ended September 30, 2023). Its non-GAAP gross profit came in at $117.95 million, showing an increment of 15.4% from the previous year’s value. The company’s non-GAAP net income increased 53.9% year-over-year to $56.68 million, and non-GAAP net income per share grew 60.6% from the prior-year quarter to $1.51.
In the fiscal year 2023, the company foresees revenues in the range of $554 million to $555 million, indicating a 13% growth compared to 2022. The projected non-GAAP net income per diluted share is expected to fall between $5.04 and $5.14, showing an upward adjustment from the initial range of $4.50 to $4.65.
Street expects QLYS’ EPS to grow 22.9% from the prior-year quarter to $1.24 for the fiscal fourth quarter ending December 2023. The company’s revenue for the same quarter is expected to increase 10.7% year-over-year to $144.85 million. The company has exceeded EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock gained 54.1% year-to-date to close the last trading session at $172.93. It has soared 41.5% over the past year.
QLYS’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Quality. It is ranked #5 among 23 stocks in the B-rated Software – Security industry.
To see additional QLYS ratings for Growth, Value, Momentum, Stability, and Sentiment, click here.
WM Technology, Inc. (MAPS)
MAPS offers e-commerce and compliance software solutions to retailers and brands in the cannabis market. It provides a Weedmaps marketplace that enables cannabis users to search for and browse cannabis products from retailers and brands. Also, it offers monthly subscription-based business software solutions, like WM Listings, WM Orders, WM Stores, WM Insights, and WM Connectors.
MAPS’ trailing-12-month gross profit margin of 93.22% is 89.7% higher than the industry average of 49.14%. Its trailing-12-month CAPEX/Sales of 6.02% is 146.9% higher than the 2.44% industry average.
On November 8, GDDY launched the GoDaddy 2023 Gift Guide, a curated selection
For the fiscal third quarter that ended September 30, 2023, MAPS’ average monthly paying clients was 5,414. Its total operating expenses declined 24.1% from the year-ago quarter to $53.27 million. The company reported an adjusted EBITDA of $10.67 million, compared to a loss of $9.63 million in the same quarter last year. For the nine months ended September 30, the company reported net cash provided by operating activities of $12.41 million, compared to a loss of $10.47 million in the previous-year period.
For the fiscal fourth quarter ending December 2023, MAPS expects its revenue to be $47 million. Also, adjusted EBITDA is estimated to be approximately $5 million.
Analysts expect MAPS’ EPS to rise 95.2% in the fiscal year 2023. Its revenue for the current year is likely to be $193.66 million. Moreover, MAPS has topped the consensus revenue estimates in each of the trailing four quarters.
Shares of MAPS have gained 7.4% over the past six months to close the last trading session at $1.01.
MAPS’ POWR Ratings reflect healthy fundamentals. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
MAPS has a B grade for Growth, Value, and Sentiment. It is ranked #5 out of 23 stocks in the A-rated Software – SaaS industry.
Click here to access additional ratings for MAPS’ Quality, Stability, and Momentum,
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GDDY shares were trading at $89.79 per share on Tuesday morning, up $1.55 (+1.76%). Year-to-date, GDDY has gained 20.01%, versus a 18.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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