These 3 software companies are shouting good deals right now

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Investors flocked to software stocks during the pandemic, as the need for work-from-home technology solutions increased. But since the start of this year, some investors have fled tech stocks to look to other sectors they believe will see growth as the US economy reopens.

This has resulted in the stock prices of some fantastic software stocks taking a hit, leaving investors with excellent buying opportunities. We asked a few Motley Fool contributors for several software stocks that are screaming good business right now and they came back with it. Twilio (NYSE: TWLO), DocuSign (NASDAQ: DOCU), and Okta (NASDAQ: OKTA). Here’s why.

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This customer engagement platform is underestimated

Brian Withers (Twilio): Twilio delivered 49% organic revenue growth year-over-year for its most recent quarter and the market has yawned. The stock even sold nearly 10% the day after the results were published. As of May 6, overall, stocks have fallen more than 30% from their peak earlier in the year, making this growth stock a boon for long-term investors today. Let’s see why.

First, the results for this quarter have been excellent. Revenue was $ 590 million, including $ 45 million from its latest acquisition of customer data platform company, Segment. This makes its organic growth essentially stable quarter over quarter, but there is some good news that naysayers may miss.

Customer growth continues to be strong and presents new cross-selling opportunities between Segment customers and former Twilio customers. This is already starting to pay off, as management announced a key customer win in the quarter. CFO Khozema Shipchandler said integration efforts are on track and highlighted “strong collaboration models” between non-integrated functions like marketing and sales.

Metric

Q1 2020

Q4 2020

Q1 2021

QOQ change

YOY change

Returned

$ 365 million

$ 548 million

$ 590 million *

8%

65%

Active customer accounts

190,000

221,000

235,000

6%

24%

Dollar Based Net Expansion (DBNE)

135% **

137%

133%

(2%)

+ 2%

Data Source: Company Profit Reports. QOQ = quarter to quarter. YOY = year after year. * Note: First quarter 2021 includes $ 44.6 million in revenue from segment acquisition, which is not included in prior quarters. ** Q1 2020 DBNE does not include the impact of the acquisition of SendGrid.

Finally, customers continue to vote with their dollars, spending 33% more than in the previous 12 months. This is the fifth consecutive quarter of a net expansion of more than 130% in dollars and does not yet include the benefits of the recent acquisition.

Management expects revenue growth of at least 47% year-over-year in the next quarter, including contributions from the Twilio segment. The integration of the newly acquired customer data platform is underway and the research and development (R&D) team is being reorganized to accelerate efforts. Segment Founder and CEO Peter Reinhardt will fill one of three key R&D leadership roles reporting to CEO Jeff Lawson, and will be responsible for the Data Platform. Simon Khalaf has been promoted to head of the communication platform development team. With the resignation of Chee Chew, product manager, the company will launch a search for the third R&D leader for its main platform.

The segment customer data segment contributed less than 8% of overall revenue this quarter, but the opportunity is huge. The market for these tools is estimated at $ 17 billion, but it also strengthens Twilio’s overall offering for its customers, making it more likely to upsell and fit deeper into a customer’s IT stack. The future is incredibly bright for this fast growing software platform, which makes it look like a good deal right now. Long-term investors might do well to add a few stocks to their portfolios today.

A man using a telephone.

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Digital signatures are just the start

Danny Vena (DocuSign): The past year has been a remarkable one for DocuSign. The onset of the pandemic and the pivot to remote working have led to an increase in the need for electronic signatures, causing DocuSign’s stock to jump 200%. As a result, some have mistakenly called the digital signature specialist a pandemic action, giving savvy investors the ability to buy stocks on the cheap.

DocuSign is the clear leader in the nascent electronic signature segment, with an impressive set of matching credentials. Agreements signed with DocuSign are legally accepted in more than 180 countries. The company has developed leading standards for electronic / digital signatures and identity verification, which comply with industry and region specific laws. In addition, documents can be signed in 44 languages ​​and sent in 14, making it a truly comprehensive solution.

The company has hundreds of millions of users, with more than 892,000 paying customers. DocuSign also counts among its clients 10 of the world’s top 15 financial companies, 18 of the world’s top 20 pharmaceutical companies and seven of the world’s top 10 technology companies. As a result, DocuSign controls approximately 70% of the electronic signature market.

By using DocuSign, businesses save time and money. The average DocuSign deal is completed in a day, about nine days faster than signing paper documents. This represents a savings of around $ 36 per document on average, compared to paper-based processes.

Yet electronic signatures are only the beginning of DocuSign’s offerings. In early 2019, the company embarked on contract lifecycle management (CLM) by launching the DocuSign Agreement Cloud. The platform provides a suite of apps and integrations designed to help organizations automate the entire agreement process. CLM contains many unique phases, including initiation, creation, process and workflow, negotiation, approval, execution, management and compliance, and renewal. Accord Cloud provides solutions that simplify work every step of the way.

As CEO Dan Springer pointed out last year, digital signatures are just the start of a customer’s journey with DocuSign. “Typically, the electronic signature is the first step many customers take on their larger digital transformation journey with us,” said Springer. “So from a financial perspective, we think this increase in e-signature adoption bodes well for future expansion of the agreement cloud. ”

DocuSign’s financial data paints a breathtaking picture. The company generated $ 1.5 billion in revenue last year, up 49%, while subscription revenue rose 50%. Billing – which includes sales that were contracted but not yet included in revenue – climbed to $ 1.7 billion, up 56%. Although the business is still not profitable, it generates abundant liquidity. Operating cash flow doubled to $ 297 million last year, while free cash flow of $ 215 million rose 388%, which should help ease concerns about earnings.

It’s also worth noting that with the addition of Document Cloud, DocuSign has doubled its total addressable market to around $ 50 billion, which is paltry compared to its revenue of $ 1.5 billion. ‘last year.

I think this all makes DocuSign a big buy.

A man with headphones sitting in front of a computer.

Image source: Getty Images.

Okta accesses a huge opportunity

Chris Neiger (Okta): Okta’s software acts as a gatekeeper for online users, giving access to those who are supposed to have it and denying it to those who don’t. The company has established itself as a key player in the identity and access management (IAM) market, in which the company believes it has a total addressable market of $ 80 billion.

Okta’s businesses have benefited tremendously, as closures and social distancing forced many workers to work from home over the past year. But with the opening of the US economy, some investors mistakenly viewed the company as pandemic stock and sold their stocks. The result? Okta’s stock price is down nearly 6% year-to-date.

It’s unfortunate for short-sighted investors, but for long-term investors, the recent massive selloff has created a fantastic buying opportunity. Because even if the pandemic has helped accelerate Okta’s growth – it reached 10,000 customers at the end of 2020 – it is far from having finished growing.

For example, the company has just closed its Auth0 acquisition, a popular identity platform for developers. The purchase is expected to help further strengthen Okta’s position in the IAM market and make it even easier for its customers to use its services.

The point is, even with the pandemic behind us, the need to protect corporate data will remain. Okta already has increased his TAM in Identity Management from $ 55 billion to $ 80 billion by switching to Identity Governance Administration and Privileged Access Management last month.

With its recent expansion into new areas of identity management and its acquisition of Auth0, Okta is positioning itself to be an even stronger IAM platform than it already is. And with the company’s stock price taking a recent hit, now is a great time to start a position with that stock.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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