The COVID-19 pandemic has increased the importance of technological advancements for businesses considerably. The software industry has been seeing strong demand over the past few years due to emerging technological trends, the growing need for data analytics, and increasing business automation in almost every industry.
Furthermore, increasing investments by various industries in advanced technologies, such as artificial intelligence and blockchains, are expected to drive the software market’s growth. Indeed, the global business software and services market is expected to grow at an 11.7% CAGR from 2022 -2030.
Given this backdrop, Wall Street Analysts expect high-growth software stocks Datadog, Inc. (DDOG), HubSpot, Inc. (HUBS), and Snowflake Inc. (SNOW) to rally by more than 47% in price in the coming months.
Click here to check out our Software Industry Report for 2022
Datadog, Inc. (DDOG)
DDOG offers a monitoring and analytics platform for developers, information technology operations teams, and business users in the cloud internationally. The New York City company's SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, and security monitoring to provide real-time observability of its customers' technology stack.
Recently, DDOG announced two new capabilities for Watchdog, its AI engine: Log Anomaly Detection, which automatically understands and baselines normal patterns in logs, and proactively finds abnormalities, which enable users to quickly see and address hidden issues before they turn into critical incidents; and its Root Cause Analysis performs with DDOG's APM products to automatically recognize causal relationships between symptoms of an issue across an organization's services.
Last month, DDOG announced its partnership with Microsoft for the Azure Cloud Adoption Framework. This framework provides organizations with a roadmap for migrating their application to Azure with recommended tools, best practices, and documentation. Azure customers can now leverage DDOG's monitoring and security capabilities to speed up their cloud adoption.
DDOG's revenue increased 83.7% year-over-year to $326.20 million for the fourth quarter ending Dec. 31, 2021. Its non-GAAP operating income grew 289.7% from its year-ago value to $70.62 million, while its non-GAAP net income improved 267.7% from its prior-year quarter to $70.17 million. Its non-GAAP EPS amounted to $0.20, up 233.3% from its year-ago value.
Analysts expect DDOG's revenue to increase 70.1% year-over-year to $337.70 million for the first quarter, ending March 31, 2022. The $0.11 consensus EPS estimate for the same period represents an 87.6% improvement year-over-year. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 56.2% in price over the past year and 31% over the past nine months. DDOG's revenue and levered fund cash flows have grown at CAGRs of 73.2% and 141.7%, respectively, over the past three years.
Among the 19 Wall Street analysts that rated DDOG, 15 rated it Buy, and three rated it Hold. The 12-month median price target of $203.17 indicates a 48% potential upside. The price targets range from a low of $136.00 to a high of $228.00.
HubSpot, Inc. (HUBS)
HUBS in Cambridge, Mass., delivers a cloud-based customer relationship management (CRM) platform for businesses in the Americas, Europe, and the Asia Pacific. The company's CRM platform includes marketing, sales, service, content management systems, and integrated applications.
Last month, HUBS announced a partnership with the alternative financing platform Pipe. Under this partnership, Pipe will provide access to $100 million in fee-free funding to HUBS for Startups customers, while Pipe customers will receive a 30% discount on HUBS' CRM Suite. The partnership should allow startups to pursue business growth with HUBS' market-leading CRM platform while accessing growth capital through Pipe.
Also last month, HUBS announced the launch of HubSpot Creators, its new accelerator program to identify and invest in aspiring creators globally. HubSpot Creators will launch starting with a group of eight podcast creators and will tap into the company's firsthand experience in building media channels from scratch to assist creators in expanding their brands with dedicated resources and networks. With time, the program will focus on expanding beyond just podcasts to include YouTube and newsletter creators.
During the fourth quarter, ending Dec. 31, 2021, HUBS' revenue increased 46.8% year-over-year to $358.66 million. Its gross profit grew 45.4% from its year-ago value to $297.67 million. Its cash and cash equivalent stood at $377.01 million during its fiscal year ending Dec. 31, 2021.
The $0.47 consensus EPS estimate during the first quarter, ending March 31, 2022, represents a 50% improvement year-over-year. Analysts expect HUBS' revenue to increase 36% year-over-year to $382.68 million for the first quarter, ending March 31, 2022. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
HUBS' revenue has grown at a 36.4% CAGR over the past three years. Furthermore, the company's levered fund cash flow grew at a 43.4% CAGR over the past three years.
Of the 19 Wall Street Analysts that rated HUBS, 17 rated it Buy, and two rated it hold. The 12-month median price target of $698.42 indicates a 53.5% potential upside. The price targets range from a low of $575.00 to a high of $925.00.
Snowflake Inc. (SNOW)
SNOW San Mateo, Calif., offers a cloud-based data platform in the United States and internationally. The company's platform provides Data Cloud, allowing customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data. Its platform is used by multiple organizations of sizes in various industries.
Last month SNOW announced an extension of its relationship with Amazon Web Services (AWS) to enhance demand forecasting and delivery for the retail and consumer packaged goods (CPG) industries. This recent development will allow customers to receive Amazon purchase order (PO) data and leverage product demand forecast data generated by Amazon Forecast within Snowflake's Retail Data Cloud.
Also last month, SNOW announced the launch of the Retail Data Cloud, which combines Snowflake's data platform, Snowflake- and partner-delivered solutions, and industry-specific datasets. The Retail Data Cloud authorizes retailers, manufacturers, distributors, consumer packaged goods (CPG) vendors, and industry technology providers to leverage their own data, access new data, and seamlessly unite across the retail industry.
For its fourth quarter ending Jan.31, 2022, SNOW's revenue increased 101.5% year-over-year to $383.77 million. Its gross profit improved 132% from its year-ago value to $249.59 million. And its cash and cash equivalent stood at $1.09 billion for its fiscal year ending Jan. 31, 2022.
Analysts expect SNOW's revenue to increase 80.4% year-over-year to $413.05 million for the first quarter, ending April 30, 2022. The $0.16 consensus EPS estimate for its fiscal year 2023 represents a 1144.9% improvement year-over-year. Furthermore, SNOW's revenue has grown at a 132.8% CAGR over the past three years.
Among the 23 Wall Street analysts that rated SNOW, 14 rated it Buy, and eight rated it Hold. The 12-month median price target of $313.86 indicates a 59% potential upside. The price targets range from a low of $190.00 to a high of $415.00.
Click here to check out our Software Industry Report for 2022
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DDOG shares were trading at $132.40 per share on Wednesday morning, down $4.88 (-3.55%). Year-to-date, DDOG has declined -25.66%, versus a -5.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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