The rapidly changing tech space is exploring new avenues to boost revenues by utilizing digital innovations to facilitate innovation and change. Despite high inflation and the Fed’s hawkish stance, software stocks have gained investors’ attention of late due to their solid growth prospects.
Therefore, investors could consider buying fundamentally strong software stocks GoDaddy Inc. (GDDY), CSG Systems International, Inc. (CSGS), and Sapiens International Corporation N.V. (SPNS).
The tech sector has not only survived but also thrived despite the disruptions caused by the strong macroeconomic headwinds over the past year. The pandemic-induced challenges have forced many companies to adopt new digital strategies and drastically alter their work models. Moreover, with the likelihood of the Federal Reserve easing up on interest rate hikes in sight, the industry is poised to see impressive growth.
Software has become the prime focus of technological innovation through constant evolution. Apart from running devices and applications, it has been gaining immense traction from the ongoing cloud transition. Remote working, learning, and diagnosis have also boosted the demand for software applications.
The industry seems to be at a bright spot, given the higher spending by enterprises on software procurement. Gartner, Inc. (IT) forecasted global IT spending to reach $4.6 trillion in 2023, reflecting an increase of 5.5% from 2022.
Given the current market uncertainties, the companies in this space are focusing on maximizing profits, retaining customers, and improving efficiency by implementing strategies like staff reductions and redirecting resources towards core business areas. The software market’s revenues are projected to reach $659 billion in 2023.
Furthermore, the global enterprise software market is projected to reach around $610.09 billion by 2032, poised to grow at a CAGR of 11.7% during the forecast period between 2023 and 2032.
Given this backdrop, it could be wise to invest in GDDY, CSGS, and SPNS to position yourself for solid returns in the future.
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 May 1, the company teamed up with Microsoft to enable seamless payments over virtual meetings for small, service-based businesses. This expansion to Teams' meetings aligns perfectly with GDDY’s vision of building a commerce platform that allows entrepreneurs to transact from anywhere.
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 the company’s suite of connected commerce tools that empower entrepreneurs with everything they need to scale their businesses.
GDDY’s total revenue increased 3.3% year-over-year to $1.04 billion in the fiscal first quarter (ended March 31, 2023). Its NEBITDA grew 10.5% from the year-ago value to $249.70 million, while its unlevered free cash flow increased 5.9% year-over-year to $303.90 million over the period.
Also, the company’s cash and cash equivalents amounted to $892.40 million, up 15.3% from $774 million for the period that ended December 31, 2022.
The consensus EPS estimate of $0.57 for the second quarter (ending June 30, 2023) represents a marginal increase year-over-year. The consensus revenue estimate of $1.05 billion for the current quarter indicates a 3.9% increase from the same period last year.
The stock has gained marginally over the past year to close the last trading session at $71.54
GDDY’s solid prospects 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 are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has a B grade for Value and Quality. Out of 50 stocks in the Software - Business industry, it is ranked #6. Click here to see the additional POWR Ratings for GDDY (Growth, Momentum, Stability, and Sentiment).
CSG Systems International, Inc. (CSGS)
CSGS is a global leader in providing customer engagement, revenue management, and payment solutions. The company offers integrated real-time revenue management platforms, leveraging the public cloud, private cloud, or on-premises deployments to optimize and monetize transactions at every customer lifecycle stage.
On February 22, CSGS announced the first deployment of its joint solution with Axiata Digital Labs (ADL) at Namibia’s leading mobile operator. Built on TM Forum Open API standards, the solution offers flexibility and scalability to support multiple Communications Service Provider (CSP) business models while simplifying operational complexities and reducing costs under one platform.
Ian Watterson, SVP and head of APAC at CSGS, said, “With our joint solution, customers can take advantage of our cloud-based platform to create powerful partner ecosystems, deliver future-forward digital offerings and provide a customer experience that is second to none.”
CSGS' revenue increased 13% year-over-year to $289.74 million in the fiscal first quarter (ended March 31, 2023). Its non-GAAP operating income came in at $53.51 million, up 33.2% year-over-year.
The company’s non-GAAP net income grew 15.7% from the prior-year quarter to $31.77 million, while its non-GAAP EPS increased 20.9% from the year-ago value to $1.04. Additionally, its non-GAAP adjusted EBITDA stood at $67.31 million, representing a 19.4% increase year-over-year.
Analysts expect CSGS’ revenue to increase 5.9% year-over-year to $258 million for the current quarter (ending June 30, 2023), while its EPS is expected to be $0.73 in the same period. Moreover, the company surpassed the revenue estimates in three of the trailing four quarters.
Over the past five days, the stock has gained marginally to close its last trading session at $49.37.
CSGS' strong fundamentals are reflected in its POWR Ratings. The company has an overall B rating, which translates to Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Stability, and Quality. Within the same industry, it is ranked #5. To see the POWR Ratings of CSGS for Momentum and Sentiment, click here.
Sapiens International Corporation N.V. (SPNS)
Headquartered in Holon, Israel, SPNS provides software solutions for the insurance and financial services industries. The company offers Sapiens CoreSuite and Sapiens IDITSuite, Sapiens CoreSuite, Sapiens UnderwritingPro, Sapiens ApplicationPro, Sapiens IllustrationPro, and Sapiens ConsolidationMaster.
On May 22, SPNS announced that Vietnamese digital insurer OPES Insurance Company (OPES) had chosen Sapiens IDITSuite to modernize its core insurance business. Sapiens IDITSuite for Property & Casualty, coupled with Sapiens Intelligence, provides OPES with a turnkey solution for expanding its business.
Additionally, in the same month, Atain, a major Property and Casualty (P&C) insurance company, selected Sapiens CoreSuite for the P&C SaaS solution to provide its specialty lines with greater automation and standardization.
Such developments reflect the company’s strong demand and should help expand its offerings into new markets.
During the first quarter that ended March 31, 2023, SPNS’ revenue increased 5.9% year-over-year to $124.72 million. Its non-GAAP operating income from operations stood at $22.51 million, up 8.4% from the prior year’s quarter.
In addition, its attributable net income increased marginally year-over-year to $14.19 million, while its EPS rose 4% from the year-ago value to $0.26. Also, the company’s adjusted EBITDA came in at $23.57 million, representing a 7.6% increase year-over-year.
Street expects SPNS' EPS to increase 19.5% year-over-year in the second quarter (ending June 30, 2023) to $0.32. Its revenue for the ongoing quarter is expected to increase 6.4% year-over-year to $126.19 million.
Shares of SPNS have gained 30.6% year-to-date to close the last trading session at $24.13.
It is no surprise that SPNS has an overall rating of B, which translates to Buy in our proprietary rating system. It also has a B grade for Growth, Value, and Stability. In the same industry, it is ranked #4 of 50 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see the SPNS ratings for Momentum, Sentiment, and Quality here.
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GDDY shares were trading at $72.53 per share on Monday afternoon, up $0.99 (+1.38%). Year-to-date, GDDY has declined -3.06%, versus a 10.02% 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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