The software industry is bolstered by dynamic trends, including substantial market growth, increased reliance on cloud-based solutions, and a transformative impact of the pandemic on digital ecosystems.
Therefore, investors could consider investing in quality software stocks: Microsoft Corporation (MSFT), Docebo Inc. (DCBO), and Kaltura, Inc. (KLTR) for end-of-year success.
The surge in enterprise data volume, increased automation, and expanding cloud adoption are key drivers for the global business software and services market.
North America leads in market share, emphasizing finance and support services, with ongoing advancements in technologies like blockchain and AI influencing industry growth. The global business software and services market is expected to expand at a CAGR of 11.9% from 2023 to 2030.
Additionally, the software as a service (SaaS) industry is witnessing a surge in demand driven by the increasing adoption of public cloud services, particularly in response to the high cost of on-premises software deployment. The global market of SaaS is projected to expand at a CAGR of 13.9% to reach $1.02 trillion by 2032.
Furthermore, the application development software market is witnessing a shift toward industry-specific platforms, increased emphasis on automation and workflow tools, and a rising demand for user-friendly development environments. These trends reflect a shift toward specialized solutions and enhanced development capabilities to meet diverse application requirements.
In 2023, revenue in the U.S. application development software market is projected to reach $85.66 billion. It is expected to grow at a CAGR of 5.8% to reach $113.70 billion by 2028. The global application development software market is expected to expand at a CAGR of 21% to reach $787.69 billion by 2027.
Considering these conducive trends, let’s look at the fundamentals of the three software stocks.
Microsoft Corporation (MSFT)
MSFT is a global tech company known for products like Microsoft Office, Windows, and Azure. It offers a range of services, devices, and solutions in areas like productivity, cloud computing, and personal computing. The company sells its products through various channels worldwide.
On November 29, MSFT and the UNFCCC collaborated to build an AI-powered platform and global climate data hub to streamline the validation and analysis of climate data under the Paris Agreement.
MSFT is investing $3 million over two years to support the implementation of advanced technologies, addressing the need for accurate measurement of global carbon emissions. This initiative enhances transparency and will be presented at COP28.
In the first quarter ended September 30, 2023, MSFT reported total revenue of $56.52 billion, up 12.8% year-over-year. The company's operating income and net income increased 25% and 27% from the prior year's quarter to $26.90 billion and $22.29 billion, respectively. Moreover, its EPS grew 27% from the previous-year quarter to $2.99.
Street expects MSFT's revenue and EPS to grow 15.7% and 18.6% year-over-year to $61.03 billion and $2.75 for the second quarter ending December 2023, respectively. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
MSFT’s shares have gained 51.8% over the past year and 54.7% year-to-date to close the last trading session at $370.95.
MSFT’s POWR Ratings reflect its positive prospects. 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, with each factor weighted to an optimal degree.
MSFT has an A grade for Sentiment and a B for Stability and Quality. Within the B-rated Software - Business industry, it is ranked #12 out of 44 stocks.
In addition to the POWR Ratings stated above, one can access MSFT’s additional Growth, Value, and Momentum ratings here.
Docebo Inc. (DCBO)
Based in Toronto, Canada, DCBO is an AI-powered learning management software company offering a cloud-based platform for personalized training and content creation. The company specializes in Learning Management Systems (LMS) for internal and external workforce development.
On September 28, 2023, DCBO launched "Docebo for Microsoft Teams" on Microsoft AppSource and Teams Store. This integration allows Microsoft Teams users to access Docebo's learning platform seamlessly, enhancing learner engagement with features like customizable dashboards and easy access to courses.
The partnership aims to streamline learning experiences and contribute to the Microsoft AppSource ecosystem, fostering continuous learning within organizations.
During the third quarter ended September 30, 2023, DCBO’s revenue and gross profit grew 25.8% and 26.5% from the previous-year quarter to $46.51 million and $37.73 million, respectively. The company reported adjusted net income and EBITDA of $4.95 million and $4.51 million, up 236.4% and 616.2% year-over-year, respectively.
Also, its free cash flow increased significantly from the prior-year quarter to $8.35 million.
DCBO’s revenue and EPS are expected to grow 24.3% and 98% year-over-year to $48.43 million and $0.14 for the fourth quarter ending December 2023, respectively. The company surpassed the EPS estimates in each of the trailing four quarters.
DCBO’s shares increased 45.9% over the past year and 36.7% to close the last trading session at $45.30.
DCBO’s POWR Ratings reflect this robust outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Sentiment and Quality and a B for Growth. Within the Software - Application industry, it is ranked #10 among 132 stocks.
Click here for DCBO’s additional Value, Momentum, and Stability ratings.
Kaltura, Inc. (KLTR)
KLTR is a global provider of SaaS and PaaS solutions, specializing in video products and services for diverse industries, including education, healthcare, and media. The company offers webinars, virtual events, video portals, and online learning, with a focus on video-based solutions for educational institutions.
On November 8, KLTR announced that it had closed three seven-digit deals and twelve six-digit deals during the fiscal third quarter.
In September, KLTR extended its collaboration with Reshet 13, a prominent Israeli commercial broadcaster. KLTR efficiently powered Reshet’s complete Cloud TV service within three months, accommodating various frontend devices.
Shuki Eytan, KLTR's General Manager of Media & Telecom, conveyed enthusiasm for enhancing Reshet 13's digital evolution and contributing to its short and long-term digital transformation strategy.
For the third quarter, which ended September 30, 2023, KLTR generated total revenue of $43.54 million, up 6.1% year-over-year. The company achieved a non-GAAP gross profit of $28.10 million, up 4.9% from the previous-year quarter. Its adjusted EBITDA amounted to $309 thousand, compared to an adjusted EBITDA loss of $7.19 million.
KLTR anticipates a 5%-6% year-over-year increase in Subscription Revenue, reaching between $160.30 million and $161.70 million for the fiscal year 2023. Additionally, total revenue is projected to grow by around 2% year-over-year, ranging from $171.50 million to $173 million.
Analysts expect KLTR’s revenue to grow 2.2% year-over-year to $172.57 million for the fiscal year ending December 2023. Its EPS is expected to improve 38.2% from the prior year for the same period. The company surpassed the revenue estimates in each of the trailing four quarters.
The stock has gained 1.7% over the past month and 4.1% year-to-date to close the last trading session at $1.79.
KLTR’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Stability. Within the A-rated Software - SAAS industry, it is ranked #9 of 23 stocks.
To see KLTR’s additional POWR Ratings for Growth, Momentum, Sentiment, and Quality, click here.
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MSFT shares were trading at $372.74 per share on Friday afternoon, up $1.79 (+0.48%). Year-to-date, MSFT has gained 56.80%, versus a 21.31% 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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