Since last year, the software industry has faced the brunt of the Fed’s aggressive interest rate hikes to quell inflation. However, industry participants like Oracle Corporation (ORCL), GoDaddy Inc. (GDDY), and Xperi Inc. (XPER) should benefit from accelerated demand for digital transformation and the ongoing shift to the cloud. With IT spending set to accelerate by nearly five times this year, let’s explore why these stocks could be ideal buys.
The stock market has been volatile over the past few weeks as the Federal Reserve signaled that interest rates could go even higher than anticipated. Data on Friday exhibited strong hiring in the United States in February while wage growth slowed, eventually spurring a broad selloff. Regardless, the tech-heavy Nasdaq Composite notched a positive week and is up 11.8% year-to-date.
The software market’s revenues are projected to reach $650.70 billion in 2023. High demand for Software as a Service (SaaS)-based solutions due to the increasing need for remote working and hybrid work cultures has been driving demand. Robust IT spending on software is another positive factor for industry participants. According to GoodFirms survey results, 76.4% of organizations plan to increase their IT Spending in 2023.
Furthermore, as enterprises continue to move their on-premise workload to cloud environments, application, and infrastructure monitoring is gaining importance. Given increased spending by enterprises on software procurement to optimize scalability, the industry’s prospects are bright.
Considering these factors, it could be wise to load up quality software stocks ORCL, GDDY, and XPER that seem well-positioned to capitalize on the industry’s growth prospects.
Oracle Corporation (ORCL)
ORCL offers products and services that address enterprise information technology environments worldwide. The business provides Oracle application licenses along with its support services and cloud-based industry solutions for a diverse range of industries. It also offers hardware products and other software choices relating to hardware.
On March 9, the company declared its quarterly dividend of $0.40 per share of outstanding common stock, reflecting a 25% increase over the last quarter, payable on April 24, 2023. Its forward annual dividend of $1.60 translates to a 1.90% yield on current prices. Its four-year average dividend yield is 1.59%.
Its dividends have grown at 10.1% and 11% CAGRs over the past three and five years, respectively. Also, it has a record of eight years of consecutive dividend growth.
On February 13, ORCL and Uber Technologies, Inc. (UBER) announced a seven-year strategic cloud partnership to help accelerate UBER’s innovation in bringing new products to the market and boosting profitability. This strategic partnership reflects Oracle Cloud Infrastructure’s strong momentum and acceleration within the market versus other hyperscalers.
In the same month, ORCL announced the launch of Oracle Banking Cloud Services, a new suite of componentized, composable cloud-native services to help banks accelerate their movement amid increasing transaction volumes, customer expectations, and growing competitive threats.
The cloud native SaaS suite provides corporate and retail banks with the agility to modernize their banking applications rapidly to meet customer demands and capitalize on new opportunities.
In the fiscal third quarter that ended February 28, 2023, ORCL’s net revenue increased 17.9% year-over-year to $12.40 billion. Its adjusted operating income grew 7.7% from the year-ago value to $5.19 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $3.38 billion and $1.22, up 9% and 8% year-over-year, respectively.
Analysts expect ORCL’s EPS and revenue to increase 2.6% and 16% year-over-year to $1.58 and $13.73 billion for the fiscal fourth quarter (ending May 31, 2023). It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of its four trailing quarters.
Over the past nine months, the stock has gained 25.2% to close the last trading session at $84.07.
ORCL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Among the 134 stocks in the Software - Application industry, it is ranked #28. ORCL is also rated B in Stability and Sentiment. To see additional POWR Ratings for Growth, Value, Quality, and Momentum for ORCL, click here.
GoDaddy Inc. (GDDY)
GDDY engages in the design and development of cloud-based technology products. It operates through two segments: Applications and Commerce; and Core Platform. The company provides cloud-based solutions to individuals, businesses, and organizations to establish an online presence, connect with customers, and manage their ventures.
On February 23, GDDY announced the launch of Payable Domains, which allow small business owners to register a new domain and easily accept payments from customers. This latest innovation strengthens GDDY's suite of connected commerce tools that empower entrepreneurs with everything they need to scale their businesses.
GDDY’s total revenue increased 2% year-over-year to $1.04 billion in the fiscal fourth quarter (ended December 31, 2022). Its operating income grew 8.1% from the year-ago value to $134.90 million, while net income attributable to the company increased 7.3% year-over-year to $93.60 million. Also, the company’s net income per share attributable to its stockholders increased 15.4% from the year-ago value to $0.60.
The consensus EPS estimate of $0.49 for the first quarter (ending March 31, 2023) represents a 20.3% increase year-over-year. The consensus revenue estimate of $1.04 billion for the current quarter indicates a 3.9% increase from the prior-year period.
Over the past nine months, the stock has gained 2.3% to close the last trading session at $72.40.
GDDY’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. It also has a B grade for Value and Quality. In the Software - Business industry, it is ranked #10 of 52 stocks.
Click here to see the additional POWR Ratings for GDDY (Growth, Stability, Sentiment, and Momentum).
Xperi Inc. (XPER)
XPER provides software and services in the United States. It offers Pay-Tv solutions, IPTV solutions, managed IPTV service, video metadata, and service, app content linking services, advanced metadata, personalized content discovery, natural language voice and insights, and TiVo DVR subscriptions.
On January 5, XPER collaborated with LG Electronics to incorporate DTS:X immersive audio technology into the company's latest OLED and Premium LCD televisions. This new line of LG TVs is expected to deliver a cinematic experience to consumers while transforming their listening experience.
In the same month, TiVo, a subsidiary of XPER, and Amlogic, a fabless semiconductor company, announced that they had pre-integrated TiVo® OSonAmlogic T962D4 and T950D4 chipsets for the U.S. and European markets. By choosing pre-Integrated 4K and 2K smart TV chipsets, TV OEMs benefit from the combined scale and support of critical technology providers, hardware suppliers, and advertisers.
Benjamin Maughan, general manager of the smart TV media platform at XPER, believes that such innovations aid them in offering a turnkey, cost-effective, and market-ready TV OS and evolving as a leading independent TV OS platform supplier
For the fiscal fourth quarter that ended on December 31, 2022, XPER’s net revenue increased 8.6% year-over-year to $135.53 million. Its total current assets came in at $332.26 million for the period that ended December 31, 2022, up 19.9% compared to $277.14 million for the period that ended December 31, 2021.
Street expects XPER’s revenue to increase 2.5% year-over-year to $129.35 million for the fiscal second quarter (ending June 2023). Its EPS is expected to increase by 15% per annum over the next five years. The stock has gained 26.6% year-to-date to close the last trading day at $10.90.
XPER’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The stock has a B grade for Growth, Sentiment, and Quality. Within the Software - Application industry, it is ranked #3. Click here to view the other ratings of XPER for Value, Momentum, and Stability.
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ORCL shares were trading at $84.65 per share on Monday afternoon, up $0.58 (+0.69%). Year-to-date, ORCL has gained 3.95%, versus a 1.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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