Faced with disruption caused by pandemics, many organizations cut spending on information technology last year to keep their businesses afloat. However, as 2021 progresses and the effects of COVID-19 and related economic closures ease, IT spending will return – and cloud computing is responsible for an increasing share of IT budgets. All indications are that another decade of turbulent growth lies ahead for this increasingly important industry.
With that in mind, I think Anaplan (NYSE: PLAN), Medallia (NYSE: MDLA), en salesforce.com (NYSE: CRM) will immediately buy shares in a timely manner.
Anaplan: using data in the cloud to make better plans
Of the about $ 3.75 trillion technological researcher Gartner (NYSE: IT) expects it to be spent on IT worldwide in 2021 (a contraction of 4% from 2020), enterprise software could be a major growth spot. Software is an intangible asset, and it is easy to eliminate if an organization tries to control how much cash is pouring out. But as projects resume in the wake of 2020, software will be just as easy to turn on and deploy again. Gartner thinks operating software will outpace IT spending growth overall, with an increase of more than 7% in the coming year.
This is the area in which Anaplan operates. In particular, Anaplan provides a cloud-based and AI-enhanced enterprise planning service (ERP), software that helps organizations plan a diverse range of scenarios, from budgeting to supply and demand forecasting to marketing. performance analysis. However, Anaplan has some important advantages over its peer-to-peer software counterparts. It’s in the cloud, and a general migration to cloud computing makes Anaplan an ideal fit for modern technological infrastructure. It is also built to be collaborative, a basic staple as many workers work remotely rather than in an office. And because machine learning is built into its service, planning teams can gain extra insight into potential outcomes and further plan for contingencies.
The superiority of Anaplan’s software appears in the numbers. Just like other business software kits, revenue hit hard last year when customers hit the brakes on new spending. Nevertheless, a “bad year” for Anaplan was still equal to the 30% sales growth during the first nine months of the company’s 2021 financial year (the period ending 31 October 2020). As Anaplan starts erasing the initial effects of the pandemic from last spring, I think the chances are high that the company’s revenue will accelerate.
Granted, there are reasons why an investor can stop before investing in Anaplan. The free cash flow was negative $ 27.8 million during the first nine months of the year, and it is unlikely that it will go to a positive area any time soon, as the company is currently spending a lot to maximize growth. Nevertheless, Anaplan had generous cash of $ 297 million at the end of October. Shares trade 23 times behind 12-month sales, and shares look like a long-term value given Anaplan’s current growth and long-term potential in an ERP space worth ten billion dollars a year in annual spending.
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Medallia: the rise of digital experience monitoring
Speaking of companies with AI built into their platforms, Medallia seems like a great choice in the digital experience market. Medallia is a customer and work experience service that captures digital signals to measure an experience within an application or other digital interaction. Medallia’s AI analyzes and then predicts a user’s interaction and provides steps that a business can improve to improve.
This is the same sandbox as Qualtrics XM plays in, a company that recently resumed as a public matter JUICE put it off via IPO. SAP acquired Qualtrics for $ 8 billion in 2019, but Qualtrics is now valued at nearly $ 25 billion, which is 30 times less than 12 months. In contrast, Medallia is valued at a market capitalization of $ 6.2 billion, which is less than 13 months less than 12-month sales.
For some reason, Medallia trades at a relative value. Revenue increased “only” by 20% through three quarters of the company’s fiscal year 2021, which was affected by similar trends in enterprise software spending as Anaplan. Medallia is also not yet profitable and operates at a negative free cash flow of $ 26.0 million over the same nine-month period. But with $ 654 million in cash and short-term equivalents at the end of October last year with a convertible debt of $ 442 million, Medallia is in good shape.
As organizations upgrade their digital budgets this year, the growth of Medallia’s software may increase again. And if I notice sales less than 13 times in 12 months, I think this stock is a real value. Digital experience software is a powerful tool that helps businesses reduce the number of customers and employees leaving. The kind of continuous improvement of applications – a new area for many businesses that adapt to rapidly changing times – is invaluable. In a new cloud-based era, I think Medallia is just getting started.
Salesforce: an emerging leader in the cloud platform
The stories of Anaplan and Medallia are about growth and achieving profitable scale, but Salesforce in the cloud reached the point years ago. Nowadays, Salesforce is transforming itself from a niche software service (sales and service relationship management) into a full-fledged enterprise software platform. The company is fast becoming a central part of the digital toolkit of many organizations and achieves this by acquiring smaller counterparts and joining its ecosystem. This puts Salesforce on a collision course with Microsoft and other cloud computing giants.
The latest takeover, the pending acquisition of collaboration specialist Slap, is the largest yet. The move is aimed at the future of work, which Salesforce believes will allow employees to work remotely via the Internet from afar. The sales inventory is about 20% lower than overall highs, reflecting the risk that Salesforce spending does not yield. However, I buy the downside.
There are two reasons. First, the company has a long history of acquisitions and transforms into profitable members of the Salesforce family (or Ohana, as Salesforce calls it). I do not see the fast-growing Slack working differently. And second, Salesforce could also benefit from a surge in IT spending in 2021. Although the company remained in a double-digit growth mode last year, it was not a pain-free period. Many of its customers suffered during the pandemic, and a gradual easing of corporate budgets is likely to turn into higher cloud platform activity, as Salesforce offers.
It is a premium price share with almost 60 times a free cash flow of 12 months. But Salesforce is aiming to become one of the largest software companies in the world, and its success up to this point makes me optimistic that it will achieve its ambitious goals. It’s primarily responsible for getting the cloud revolution going in the first place, it remains an important part of my portfolio, and it’s still worth a purchase after the withdrawal announcement after the Slack.