ServiceNow (NOW), Atlassian (NASDAQ: TEAM), Structure (NYSE: INST) and VMware (NYSE: VMW) are Macquarie’s top investment firm picks in the enterprise software sector, which the company says they are “well positioned” though if there is an economic collapse.
Analysts Frederick Havemeyer and Garrett Hinds have noted that enterprise software companies are in a better position if the economy hits the skid, but those considered the “best race” are likely to give shareholders of “solid” cash flow generation and sticky customer bases.
“Although we are likely to see high churn, especially from SaaS companies with a larger proportion of small to medium-sized businesses (as we saw at the beginning of the COVID-19 pandemic), we think that with solid balance sheets, a mind for profitable growth, and disciplined execution, enterprise software companies can weather the storm, ”the analysts wrote.
Regarding ServiceNow (NOW), analysts think the company’s consistent renewal rates, which are between 97% and 99%, are “emphasizing its mission-critical positioning” within other companies and can help the company once again accelerate subscription revenue growth to 28.5% year on year. -over-year, compared to 28% in 2021.
ServiceNow (NOW) also has $ 4B of cash on its balance sheet and with the guide targeting a 31% non-GAAP free cash flow margin by 2022, analysts believe it “offers a stable economic model. “
Atlassian (TEAM) is likely to benefit because it has a “low-touch, self-serve sales model” that allows the company to spend between 14 and 17% of its total revenue on sales and marketing, while seeing more than 50% year -over -year growth in subscription revenue.
The company has “relatively high” exposure to small and medium-sized businesses with its 235K customers, but the company has performed well since the pandemic began and its continued subscription shift has allowed here to have a “growth buffer,” analysts added.
Instructure (INST), which helps the education market, is the market share leader in the learning management system, which analysts believe represents “a solid customer base similar to corporate enterprises.”
The company emphasized the K-12 market and with years of tailwinds coming from the fiscal stimulus, available until 2023, Instructure software (INST) is seen as “mission-
critical ”and the evolving approach to its platform provides additional opportunities for customers to sell.
Vmware (VMW), which is in the process of acquiring Broadcom (AVGO) for $ 61B in cash and stock, is likely to see a tailwind as it moves to a software-as-a-service model, compared to one without until license. , as well as its “sticky customer base.”
The stock is trading at approximately 22% discount to $ 142.50 per share offer price and analysts are not expecting any reduction in the offer, as VMware (VMW) has “many opportunities” to continue as an independent company and still drive shareholder return.
Analysts also noted that VMware (VMW) shares are likely to perform better in the second-half as the supply chain normalizes and the acquisition may close earlier than the market expects, between three and six. months, compared to the forecast for nine to 12 months.
