The stock market remains volatile, with April seeing a reversal in stock performance, breaking a streak of six months of gains. While the S&P 500 hit record highs in March, it faced notable fluctuations throughout April. However, fundamentally robust software stocks, RingCentral, Inc. (RNG), Vimeo, Inc. (VMEO), and eGain Corporation (EGAN) could help navigate the current volatility.
The promising prospects of the software industry are shaped by businesses prioritizing scalable cloud services, increased blockchain use for fraud prevention, AI and low-code development, and emerging trends such as the Internet of Behavior, Total Experience, edge computing, AR/VR, and DevOps. The global business software and services market is forecasted to grow at a CAGR of 11.9% until 2030.
Gartner predicts worldwide IT spending to grow 6.8% year-over-year to $5 trillion in 2024, with spending on software projected to increase 12.7% over the prior year to $1.03 trillion. The software market is expected to grow at a 5.3% CAGR from 2024 to 2028, reaching $858.10 billion. This expansion is fueled by rising investment in mobile apps, especially in AI, mobile gaming, and new monetization approaches.
Furthermore, as public and hybrid cloud services gain traction worldwide, businesses are investing significantly in Software-as-a-Service (SaaS). This offers benefits like easy access, scalability, cost-effectiveness, automatic updates, and enhanced security measures. The global SaaS market is projected to grow at a CAGR of 6.2% to reach $325.84 billion in 2028.
Now, let's take a closer look at the fundamentals of the stocks mentioned above.
RingCentral, Inc. (RNG)
RingCentral, along with its subsidiaries, provides cloud communications, video meetings, collaboration, and contact center software-as-a-service solutions worldwide. The company's products include RingCentral Message Video Phone, RingCentral Contact Center, RingCX, RingCentral Video, and RingCentral Professional Services, serving various industries.
On April 30, 2024, RNG announced new platform capabilities, including RingSense AI APIs and Workflow Builder, enabling non-technical users and developers to embed AI, video, and social messaging into workflows, automate alerts and notifications, and develop intuitive customer experiences without coding, alongside industry recognition for its platform's versatility and leadership.
These new features will allow businesses to streamline their processes and enhance customer interactions with minimal technical expertise required.
On April 2, 2024, RNG announced the launch of Brightspeed Voice+ with Brightspeed, offering enterprise customers AI-driven integrated messaging, video, and voice capabilities, streamlining business communications and enhancing workforce collaboration.
This new solution aims to improve productivity and efficiency by providing a seamless communication experience across various channels. Brightspeed Voice+ also includes advanced security features to protect sensitive business data.
In terms of the trailing-12-month gross profit margin, RNG’s 70.08% is 43.6% higher than the 48.79% industry average. Likewise, its 24.37% trailing-12-month levered FCF margin is 145.9% higher than the 9.91% industry average. Furthermore, its 1.15x trailing-12-month asset turnover ratio is 89.3% higher than the 0.61x industry average.
RNG’s total revenues for the fiscal first quarter ended March 31, 2024, grew 9.5% year-over-year to $584.21 million. Its non-GAAP income from operations rose 31.6% over the prior-year quarter to $121.09 million.
Additionally, the company's non-GAAP net income and non-GAAP net income per share came in at $83.73 million and $0.87, representing increases of 14.3% and 14.5% year-over-year, respectively.
Street expects RNG’s EPS and revenue for the quarter ending June 30, 2024, to increase 5.9% and 8.7% year-over-year to $0.88 and $586.44 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 28.5% to close the last trading session at $35.41.
RNG’s POWR Ratings reflect strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #7 out of 43 stocks in the Software - Business industry. It has an A grade for Growth, and Value and a B for Quality. Click here to see RNG’s Momentum, Stability, and Sentiment ratings.
Vimeo, Inc. (VMEO)
VMEO and its subsidiaries provide video software solutions worldwide. The company offers video tools through a software-as-a-service model, which enables its users to create, collaborate, and communicate with video on a single platform.
On February 29, 2024, VMEO announced the launch of Vimeo Central, an AI-powered video hub designed for enterprise communication. It offers features like enhanced video libraries, AI-powered tools for video condensation and summaries, and a recording studio for effective team collaboration and engagement, addressing the challenges of decentralized knowledge and improving productivity.
With Vimeo Central, businesses can streamline their internal communication processes by easily creating, sharing, and organizing video content. This platform aims to revolutionize the way companies communicate and collaborate in a remote work environment.
In terms of the trailing-12-month net income margin, VMEO’s 6.88% is 159.2% higher than the 2.66% industry average. Its 0.69x trailing-12-month asset turnover ratio is 41.2% higher than the industry average of 0.49x. In addition, VMEO’s 4.61% trailing-12-month Return on Total Assets is 302.4% higher than the industry average of 1.14%.
For the fiscal first quarter that ended March 31, 2024, VMEO’s revenue came in at $104.91 million, up 1.3% year-over-year. Its non-GAAP gross profit rose 1.7% year-over-year to $81.70 million. The company’s net earnings came in at $6.07 million, compared to a net loss of $698 thousand in the year-ago quarter. Additionally, its EPS stood at $0.04.
Analysts expect VMEO’s EPS and revenue for fiscal 2025 to increase 45.3% and 3.4% year-over-year to $0.07 and $413.40 million, respectively. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters. Over the past year, the stock has gained 8.2% to close the last trading session at $3.82.
VMEO’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It is ranked #2 out of 18 stocks in the A-rated Software - SAAS industry. It has an A for Value, and Quality and a B for Sentiment. To see VMEO’s Growth, Momentum, and Stability ratings, click here.
eGain Corporation (EGAN)
EGAN specializes in developing, licensing, implementing, and supporting customer service infrastructure software solutions. Their main offering is the Knowledge Hub, a unified solution that automates, augments, and orchestrates customer engagement. EGAN provides subscription services for cloud-based access to their software and offers professional services.
On March 25, 2024, EGAN announced AssistGPT for CCaaS at Enterprise Connect, offering an AI-driven zero-code tool to automate knowledge management, with pre-built connectors to leading CCaaS providers, accelerating knowledge deployment and minimizing risks.
This new tool will revolutionize the way contact centers operate by streamlining processes and improving customer service. With its user-friendly interface and seamless integration capabilities, AssistGPT is poised to become a game-changer in the industry.
On March 8, 2024, EGAN and GreenPath Financial Wellness expanded the capabilities offered by the Virtual Financial Coach Lea, providing personalized guidance on managing debt, boosting savings, and improving credit health. Through this partnership, users can access tailored financial advice and resources to help them achieve their financial goals.
In terms of the trailing-12-month EBIT margin, EGAN's 7.51% is 69.7% higher than the 4.43% industry average. Likewise, its trailing-12-month Return on Common Equity of 14.12% is 362.1% higher than the 3.06% industry average. Additionally, its 10.64% trailing-12-month levered FCF margin is 7.4% higher than the industry average of 9.91%.
For the fiscal third quarter that ended March 31, 2024, EGAN reported a total revenue of $22.35 million. Its gross profit amounted to $15.49 million. The company’s non-GAAP net income and non-GAAP EPS came in at $2.60 million and $0.08, respectively, up 142.1% and 166.7% over the prior-year quarter. Also, its adjusted EBITDA increased 96.3% year-over-year to $2.25 million.
For fiscal 2024 EGAN's EPS is expected to increase 34% year-over-year to $0.34. Its revenue for fiscal 2025 is expected to increase marginally year-over-year to $91.72 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained marginally to close the last trading session at $5.79.
EGAN's strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value, Sentiment, and Quality and a B for Stability. Within the Software – Application industry, it is ranked #3 out of 136 stocks. To access the additional POWR Ratings for EGAN's for Growth, and Momentum, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
RNG shares were trading at $36.37 per share on Monday afternoon, up $0.96 (+2.71%). Year-to-date, RNG has gained 7.13%, versus a 9.87% 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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