In the past decade, cloud stocks have been the best performing stocks on the market. These populations are also particularly strong during the coronavirus pandemic.
Considering the huge shift in corporate IT spending in public clouds, cloud computing is still a promising field for investors in 2021. It provides companies with an opportunity to save costs because they no longer need to manage their own infrastructure.
According to data from market research company Gartner, global annual spending on public clouds is expected to grow from US$250 billion in 2020 to US$360 billion in 2022.
Here, let’s look at three cloud computing companies that are expected to outperform the market in 2021.
Data dog (dog) Is a rapidly developing software platform
The first stock on the list is Datadog (DDOG), which monitors enterprise cloud activity and mines it for business insights. Datadog provides a monitoring and analysis platform for developers, technical teams and business users.
Its SaaS (software as a service) platform integrates and automates multiple processes, such as infrastructure monitoring, log management, and application performance monitoring, which provide real-time data on the company’s technology stack.
The Datadog platform also provides network performance monitoring and products, including dashboards, advanced analysis and collaboration tools.
In the most recent quarter, Datadog’s sales increased 68% year-on-year, and according to the company’s midpoint forecast, it expects full-year revenue to grow 57%. As the company continues to expand, Datadog can also increase its profit margins.
In the last fiscal year, Datadog announced an operating loss of 5.4 million U.S. dollars, and the company predicts that operating income in 2020 will be between 28 million and 34 million U.S. dollars. In the June quarter, the number of customers with annual recurring revenues of more than $100,000 increased by 71% year after year.
Its customer base also increased by 37% in the second quarter, and its dollar-based net retention rate reached 130%, which means that compared with the same period last year, customer spending on the Datadog platform increased by 30%.
Datadog’s stock price is currently $102, and has risen 180% since it went public in September last year. The company’s market capitalization is $31 billion, indicating that its forward P/E ratio is 54 times and P/E ratio is 851 times. The stock’s current valuation is high, but it benefits from strong earnings and revenue growth.
Splunk (Sound pressure level) Since the IPO, stock returns have reached 500%
Splunk (SPLK) develops software solutions for enterprises to obtain real-time operational intelligence. The company provides various cloud-based products and services to enterprises.
Splunk Enterprise is a data platform that includes indexing, search, reporting, analysis, monitoring and data management functions. Splunk Cloud is a cloud service for machine data, and Splunk Enterprise Security solves security threats and incident management use cases.
SignalFx provides real-time troubleshooting for cloud infrastructure applications, and Splunk IT Service Intelligence monitors key performance indicators of key IT services. In addition, Splunk also provides the Splunk application for Amazon Web Services, which collects and analyzes data from AWS data sources.
Last year, Splunk switched to a SaaS-based business model, which led to changes in revenue recognition methods. This means that the current revenue has been recognized during the entire period of the company’s subscription contract, while the previous model was to recognize revenue first when selling.
This means that Splunk’s sales in the first six months of fiscal 2021 fell 2% year-on-year to US$926 million. However, if you consider the company’s annual recurring revenue (ARR) indicator, Splunk’s total sales increased by 50% at the end of the second quarter to $1.93 billion. In the next two years, Splunk predicts that ARR will grow at an annual rate of 40%, reaching $4.6 billion by 2023.
Splunk’s market value is $34 billion, which means that its sales price multiple is 14.7 times, which is much lower than Datadog. Since its listing in 2012, Splunk’s stock price has risen 500%, and may continue to generate returns that exceed market expectations in the next decade.
ServiceNow (right now) Share price rises 75% in 2020
ServiceNow (NOW) is the third and last in this list. It provides cloud computing solutions for managing and automating repeatable business processes. The company provides information technology service management applications and digital workflow products in customer service, risk management, human resources, and other corporate fields.
ServiceNow also provides a set of IT service management products for corporate employees, customers and partners. As of 2019, the company has 6,200 customers, including 80% of Fortune 500 companies.
It now has 964 customers and an annual contract value of $1 million. ServiceNow has a 97% renewal rate, indicating a high customer retention rate. This focus on customer acquisition has enabled ServiceNow’s revenue to increase by 30% in the first half of 2020, while net revenue has increased by 69%. By 2020, the cloud giant has predicted that subscription sales will grow by about 30%.
The market value of ServiceNow is US$97 billion, which means 22 times its selling price. Since its listing in 2012, ServiceNow’s stock price has risen by 2,000% and has risen by 75% year-to-date.
Final gain
We can see that the transaction prices of these three companies are high. However, their income and earnings have achieved amazing growth, and this growth will continue in 2021. The premium trading of growth stocks means that they will outperform returns in a bull market, but they also underperform when the market turns bearish.
These companies have become part of the expanded addressable market through a subscription-based business model. This enables them to generate predictable revenue streams throughout the business cycle and reduce large fluctuations during economic downturns.
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On Friday morning, DDOG stock was trading at $99.55 per share, up $0.61 (+0.62%). Year-to-date, DDOG has risen by 163.50%, while the S&P 500 has risen by 8.62% over the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial news reporter who writes articles about business, public equity and personal finance. His work has been published on multiple digital platforms in the United States and Canada, including The Motley Fool, Finscreener and Market Realist. More…
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