The tech industry is poised for strong growth, due to increased technology adoption in emerging markets, the shift towards hybrid work environments, the rising use of cloud software solutions across businesses, education, and healthcare, and a growing demand for cloud-based content management systems.
Against this backdrop, investors might consider purchasing fundamentally robust tech stocks such as Smartsheet Inc. (SMAR), Blackbaud, Inc. (BLKB), and Box, Inc. (BOX), which are expected to show strong earnings for Q2.
Gartner forecasts IT services spending to rise by 9.7% to $1.52 trillion this year, highlighting technology's critical role in enhancing operations, resilience, and productivity. In addition, strong AI investments by tech giants are expected to drive market optimism.
Enterprises worldwide are boosting digital capabilities with investments in digital transformation, driving demand for tech services. The software sector, innovating continuously, integrates multichannel touchpoints into unified platforms to manage resources and analyze vast business data. The software market is expected to reach $858.10 billion by 2028, growing at a .
Furthermore, cloud-based SaaS software has surpassed traditional applications and dominated the cloud computing market, thanks to its versatility, scalability, automatic updates, ease of use, adaptability, collaborative features, and robust security, thereby boosting growth in the tech sector. The global SaaS market is projected to grow at a 6.2% CAGR, reaching $325.84 billion by 2028.
Considering these conducive trends, let’s assess the fundamentals of the abovementioned tech stocks.
Smartsheet Inc. (SMAR)
SMAR provides an enterprise platform to plan, capture, manage, automate, and report on work for teams and organizations.
In terms of the trailing-12-month levered FCF margin, SMAR’s 28.54% is 189.9% higher than the 9.85% industry average. Likewise, its 81.14% trailing-12-month gross profit margin is 64.6% higher than the 49.30% industry average. Additionally, its 0.83x trailing-12-month asset turnover ratio is 32.9% higher than the industry average of 0.62x.
For the first quarter, which ended April 30, 2024, SMAR’s total revenues rose 19.6% year-over-year to $262.98 million. Its non-GAAP operating income came in at $42.09 million, up 84.6% over the prior-year quarter.
For the same quarter, the company’s non-GAAP net income rose 77.1% from the year-ago value to $44.36 million. Furthermore, its non-GAAP EPS came in at $0.32, representing an increase of 77.8% year-over-year.
For the second quarter ending July 31, 2024, SMAR expects total revenue to range from $273 million to $275 million, representing year-over-year growth of 16% to 17%. Its non-GAAP operating income is anticipated to be between $38 million and $40 million. Additionally, its non-GAAP net income per share is expected to be between $0.28 and $0.29.
Street expects SMAR’s EPS and revenue for the quarter ending July 31, 2024, to increase 83.7% and 16.4% year-over-year to $0.29 and $274.25 million, respectively. It surpassed the Street EPS and revenue estimates in each of the trailing four quarters. SMAR’s stock has gained 19.2% over the past month to close the last trading session at $44.11.
SMAR’s POWR Ratings reflect robust prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 19 stocks in the B-rated Software – SAAS industry. It has an A grade for Growth, Sentiment, and a B for Quality. Click here to see SMAR’s Value, Momentum, and Stability ratings.
Blackbaud, Inc. (BLKB)
BLKB operates internationally as a cloud software solutions provider to non-profits, foundations, companies, education and healthcare institutions, and other social good entities.
On May 8, 2024, BLKB announced a $5 million strategic investment in UBIQ Education to enhance digital marketing and admissions capabilities for K-12 private schools through UBIQ's AMAIS platform. This partnership aims to modernize the admissions process and integrate UBIQ's tools with BLKB’s Total School Solution.
On May 3, 2024, BLKB announced hundreds of product updates and shared roadmaps for social impact innovation during its semi-annual Product Update Briefings. Key enhancements include AI integration, a unified view for Raiser's Edge NXT, and improvements across its software portfolio.
In terms of the trailing-12-month EBITDA margin, BLKB’s 17.43% is 76.3% higher than the 9.89% industry average. Its 22.98% trailing-12-month levered FCF margin is 133.4% higher than the 9.85% industry average. Similarly, its 11.24% trailing-12-month EBIT margin is 127.7% higher than the 4.94% industry average.
BLKB’s total revenue for the fiscal first quarter ended March 31, 2024, increased 6.7% year-over-year to $279.25 million. Its non-GAAP gross profit increased 9.6% year-over-year to $153.04 million. The company’s non-GAAP income from operations increased 28% year-over-year to $72.43 million.
In addition, the company’s non-GAAP net income grew 29% year-over-year to $49.46 million. Its earnings per share increased 29.2% year-over-year to $0.93.
BLKB for the full year 2024 expects its Non-GAAP revenue to be between $1.164 billion and $1.194 billion, with an adjusted EBITDA margin of 32.5% to 33.5%. It anticipates non-GAAP earnings per share to range from $4.12 to $4.38 and adjusted free cash flow to be between $254 million and $274 million.
For the quarter ended June 30, 2024, BLKB’s revenue is expected to increase 6.7% year-over-year to $289.24 million. Its EPS for the same quarter is expected to increase 5.9% year-over-year to $1.04. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 8.8% to close the last trading session at $75.60.
BLKB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Stability. Within the B-rated Software - Business industry, it is ranked #9 out of 41 stocks. To access the additional POWR Ratings of BLKB for Value, Momentum, Sentiment, and Quality, click here.
Box, Inc. (BOX)
BOX provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device. It serves financial services, health care, government, and legal services industries internationally.
On June 27, 2024, BOX announced powerful enhancements to BOX AI, including unlimited queries for Enterprise Plus customers, integration with GPT-4o, and support for more file types. New features will improve content management and workflow efficiency using advanced AI capabilities.
On April 9, 2024, BOX announced that Bulletproof, a global brand agency, chose BOX as its cloud platform for managing content and production. Bulletproof will use BOX to replace on-premise servers, securely collaborate with clients and partners, and improve workflow efficiency by accessing files and resources from anywhere.
In terms of the trailing-12-month Return on Total Capital, BOX’s 6.99% is 154.4% higher than the 2.75% industry average. Likewise, its 11.73% trailing-12-month Return on Total Assets is 593.3% higher than the industry average of 1.69%. Its 0.92x trailing-12-month asset turnover ratio is 48% higher than the industry average of 0.62x.
BOX’s revenues for the first quarter ended April 30, 2024, increased 5.1% year-over-year to $264.66 million. Its non-GAAP gross profit increased 8.1% year-over-year to $212.18 million. The company’s non-GAAP operating income increased 22.7% year-over-year to $70.40 million.
Additionally, its non-GAAP attributable net income increased 22.9% year-over-year to $58.40 million. Its non-GAAP attributable net income per share increased 21.9% year-over-year to $0.39. Also, the company’s non-GAAP free cash flow came in at $123.24 million, representing an increase of 13.9% year-over-year.
BOX expects its revenue for the quarter ending July 31, 2024, to be between $268 million and $270 million, showing a 3% increase year-over-year. Also, its non-GAAP diluted net income per share is expected to be between $0.40 and $0.41.
Analysts expect BOX’s EPS and revenue for the quarter ending July 31, 2024, to increase 12.4% and 3% year-over-year to $0.40 and $269.20 million, respectively. It surpassed the EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 6.8% to close the last trading session at $26.41.
BOX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked #4 out of 79 stocks in the Technology - Services industry. It has an A grade for Growth, and Quality and a B for Value. To see BOX’s Momentum, Stability, and Sentiment ratings, click here.
What To Do Next?
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SMAR shares were trading at $43.21 per share on Wednesday afternoon, down $0.90 (-2.04%). Year-to-date, SMAR has declined -9.64%, versus a 16.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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