Software-as-a-Service (SaaS) now constitutes an important economic sector in cyberspace. The global coronavirus pandemic created significant opportunities for the SaaS industry, with companies relying upon SaaS providers to remain fully functional.
On top of it, according to Gartner, 51% of IT spending by enterprise IT Groups that can transition to the cloud will shift to it by 2025, and organizations seem to be in the process of shifting to SaaS to support continued flexibility and agility. The global SaaS market size is predicted to reach $703.19 billion by 2030, growing at a CAGR of 18.8%.
Given this backdrop, Wall Street analysts expect the SaaS stocks New Relic, Inc. (NEWR), PagerDuty, Inc. (PD), and Latch, Inc. (LTCH) to rally by more than 65% in the near term. Hence, these might be reasonable additions to one’s watchlist.
New Relic, Inc. (NEWR)
NEWR is a SaaS company that operates as a platform provider for engineers to plan, build, and operate software globally. The company offers its suite of products on its open and extensible cloud-based platform New Relic One Platform, which grants users the ability to collect, store, and analyze telemetry data flowing through and about their software.
On March 2, NEWR launched a Kubernetes experience that brings together Kubernetes application and cluster performance data in a single user interface within New Relic One Application Performance Monitoring (APM) for helping developers build more performant applications. Kubernetes is an open-source system that enables the automation of deployment, scaling, and management of containerized applications. The company might benefit from this development, with Kubernetes adoption going mainstream.
On February 16, NEWR announced the general availability of its new infrastructure monitoring experience for empowering DevOps, SRE, and ITOps teams to proactively identify and resolve issues in their public, private, and hybrid cloud infrastructure. About this new offering, NEWR CEO Bill Staples stated, “I am looking forward to enabling our customers to expand their infrastructure use cases and get more value from their investment in our platform.”
For the fiscal third quarter ended December 31, NEWR’s revenue increased 22.4% year-over-year to $203.59 million. Non-GAAP gross profit rose 12.5% from the prior-year quarter to $138.89 million. For the nine months ended December 31, the company’s cash, cash equivalents, and restricted cash balance came in at $251.60 million, up 16% from the same period the prior year.
The consensus EPS estimate of $0.10 for the fiscal year 2023 indicates a 113.9% year-over-year increase. The consensus revenue estimate for the same year of $926.76 million reflects a rise of 18.1% from the prior year. Moreover, NEWR has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 7.9% over the past year to close yesterday’s trading session at $64.01.
Of the 10 Wall Street analysts that rated NEWR, four have rated it Buy, while six have rated it Hold. The 12-month median price target of $105.89 indicates a 65.4% potential upside. The price targets range from a low of $78.00 to a high of $140.00.
PagerDuty, Inc. (PD)
PD is a digital operations management platform operator in the United States and globally. The platform offers on-call management, event intelligence, incident response, business visibility, and advanced analytics solutions for addressing digital operations management requirements.
On March 2, PD announced that it has entered into a definitive agreement to acquire a no-code workflow automation platform for efficient and digitized operations called Catalytic. The acquisition is expected to expand PD’s automation capabilities and accelerate its product roadmap for flexible workflows.
On November 29, PD announced its multi-year go-to-market agreement with Amazon.com, Inc. (AMZN) Amazon Web Services, Inc. (AWS) for ensuring a painless, agile, and seamless digital operational maturity journey for customers. Dave Justice, Chief Revenue Officer at PD, said, “Working closely with the AWS global field and marketing teams, these go-to-market efforts extend the combined solutions to a broad base of customers, providing AIOps and automation to identify and accelerate critical work.”
PD’s revenue increased 33.5% year-over-year to $71.76 million in the fiscal third quarter ended October 31. Non-GAAP gross profit improved 30.4% from the prior-year period to $60.88 million. Net cash provided by investing activities came in at $5.09 million, up substantially from its negative year-ago value.
Analysts expect PD’s EPS to increase 14.3% year-over-year for the fiscal quarter ended January 2022, while Street expects revenue for the same period to rise 28.3% from the prior-year quarter to $76.08 million. In addition, PD has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past three months, the stock has gained 1.5% and 1.6% over the past month to close yesterday’s trading session at $31.44.
The seven Wall Street analysts that rated PD have rated it Buy. The 12-month median price target of $56.00 indicates a 78.1% potential upside. The price targets range from a low of $45.00 to a high of $66.00.
Latch, Inc. (LTCH)
LTCH is an enterprise technology company operating in the U.S. and Canada. It provides LatchOS for commercial Office products, an operating system that extends services such as smart access, delivery and guest management, smart home and sensors, and personalization and services.
On November 16, LTCH announced new partnerships with NAPCO Security Technologies, Inc. (NSSC) division Marks USA and TownSteel, Inc., alongside an intended partnership with dormakaba Holding AG. The partnerships are expected to bring LatchOS to more residents, property managers, and guests and help LTCH’s growth across new market segments.
For the fiscal fourth quarter ended December 31, LTCH’s revenue increased 93.9% year-over-year to $14.52 million. For the fiscal year ended December 31, the company’s net cash provided by financing activities improved 584.6% from the prior year to $447.78 million, while cash and cash equivalents balance came in at $124.78 million, up 106.2% year-over-year.
Street revenue estimate for fiscal 2022 of $86.62 million indicates a 109.4% year-over-year increase.
The stock has declined 5.5% intraday to close yesterday’s trading session at $3.58.
Of the nine Wall Street analysts rating LTCH, three have rated it Buy, while five have rated it Hold, and one has rated it Sell. The 12-month median price target of $7.44 indicates a 107.8% potential upside. The price targets range from a low of $4.00 to a high of $11.50.
NEWR shares were trading at $60.77 per share on Friday afternoon, down $3.24 (-5.06%). Year-to-date, NEWR has declined -44.73%, versus a -9.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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