Over the past decade, cloud computing has been a top performance investment theme. But it has been the current health and economic crisis that has proven the importance of cloud services. With companies and consumers struggling with orders in place, it is these digital systems that have played a crucial role in keeping the wheels turning.
Therefore, I believe that the winds that fill the cloud computing industry’s sails are far from diminishing. Global spending was expected to be a double-digit percentage growth story before coronavirus, and the pandemic is only increasing demand, making cloud storage an annual spending opportunity for a total of hundreds of billions. I like cloud storage when the 2020s start. Three that I already own and that I want to buy more of in July are salesforce.com (NYSE: CRM), CrowdStrike Holdings (NASDAQ: CRWD), also Anaplan (NYSE: PLAN).
An entire ecosystem built around customer engagement
Salesforce has gone from a specialized customer relationship management software as a service to a massive ecosystem of services centered around relationships. During this digital age, human interaction can become directly impersonal. But Salesforce does its part to prevent it in terms of business and customer relationships.
Sure, the whole business model comes from digital data. Salesforce is proud to deliver actionable insights to organizations based on information collected from their customers. But through dozens of acquisitions and internal development, the company’s platform has become a digital transformation torch carrier that puts customers first.
The company has kicked off its efforts to exaggerate during the current shutdown. It announced a new chat and video tool embedded directly into its software, expanded its freelance advisor with Torchlite to help companies manage the current business environment, partnered with Siemens (OTC: SIEG.Y) to create touchless systems for office entry and workforce, announced a new set of tools from its subsidiary MuleSoft to help healthcare companies make better use of patient data and invested $ 100 million in Tanium technologies for remote work. Salesforce has been busy over the past few months and helped users of its platform quickly turn.
But why is Salesforce stock right now? After all, the company predicted a slowdown in revenue growth for this year, with guidance for revenue that will mean the company will fall below a growth rate of 20% from a year earlier (17% is forecast) for the first time ever. Concerning? Perhaps. But the fact that this massive cloud software company still expects to maintain double-digit percent growth at all is remarkable. In addition, it has a habit of teaching and handing over. However, after the last quarterly update, there was more than enough positive in the report to keep me optimistic about Salesforce’s prospects for the coming decade.
Keeping units safe when the workforce is spread
Endpoint security is nothing new. Whenever there is a connection between a network and a device, a potential path opens that can be exploited by them with a deterrent purpose. Traditionally, this route can be closed because many organizations restricted access to their systems from an office building. With many companies migrating operations to a remote cloud over the past decade, a new form of security that also resides in the cloud was necessary to secure endpoints accessing the network.
But then the COVID-19 happened and the workforce suddenly spread to millions of homes. It has been a not so proverbial torpedo in the side of traditional security thinking. With so many people now accessing networks and workflows from an Internet connection and home device, cloud cyber security has become important. CrowdStrike, which was already favored by the migration previously, has skyrocketed. According to a report by technical researcher IDC, CrowdStrike’s market share cut has almost doubled over the past two years while the three largest established slices of pie have shrunk.
Specifically, the company’s revenue rose 85% higher during Q1 2020 to $ 178 million and sees full-year revenue of $ 761 million to $ 773 million (roughly a 59% increase from 2019). In a very short period, this has turned into one of the biggest cybersecurity players around, and it has a tremendous momentum on its side as old suppliers were still trying to adapt to changing times in the past.
Even when you use the expected one-year future result, it is a very expensive 22.8 times revenue. But in addition to dry growth, a premium is guaranteed. This is a very profitable outfit with free cash flow (revenue minus cash operating and capital costs) margin of 49% during the first quarter. It is more than likely that the margin will be moderated later this year, but it nevertheless speaks to how powerful and lucrative a business model subscription-based cloud computing can be.
Connect the dots to make better decisions
CrowdStrike is one of those companies that gets a huge knock from current world affairs. But much like Salesforce, many cloud companies report an expected break in customer spending, albeit temporarily. Anaplan is one of the cloud vendors that predicts some bumps ahead.
The company is a pioneer in the “Connected Planning” industry, as it tries to disrupt offers from old software vendors that IBM (NYSE: IBM), Oracle (NYSE: ORCL), also SAP (NYSE: SAP), and also has some overlap with services offered by larger peers Working day (NASDAQ: WDAY). But it’s a large segment of the software field, and Anaplan attacks it with its cloud-native and artificial intelligent software that brings together all the information an organization has to help make better decision-making.
After expanding 45% in 2019, Q1 2020 came to a much slower start. Revenues increased by 37% to $ 104 million, management pulled out of expectations for 2020 due to lack of visibility in closing new business and guidance during the second quarter requiring “only” 22% year-over-year growth.
On the one hand, a slowdown is expected given the belt tightening currently underway. But it still speaks to Anaplan’s attitude that it can keep the momentum still in the midst of crisis. For some, I believe that business planning will be in higher demand than ever as the effects of the pandemic are slowly starting to ease. Whether it is sales, budgeting or special project forecasting, Anaplan’s ability to help teams in different departments in an organization – and in remote locations – work together rather than in individual silos will be an important feature after coronavirus. Shares are traded at 12.2 times a year’s forward income – hardly cheap, but not unreasonable given the billions of dollars spent on planning software each year.