3 Exciting SaaS Providers to Buy Now - Analyst Blog

Enterprise adoption of cloud computing services is expected to increase at a rapid pace in 2014, in order to have faster and flexible access to large data archives. Per Cisco, enterprises are using Big Data analytics to create competitive business advantage.

Moreover, enhanced collaboration services delivered through the cloud can increase employee productivity and customer satisfaction. Increasing consumer demand for video and audio streaming applications are strong contributors to cloud computing growth. Newer services, such as personal content lockers, are also gaining popularity.

Per IHS, global businesses will spend approximately $174.2 million on cloud computing this year, up 20.0% from $145.2 billion in 2013. IHS forecasts enterprise spending to further accelerate to $235.1 billion by 2017.

Healthy Outlook for Software-as-a-Service (SaaS)

The outlook for the cloud computing industry remains significantly bright due to higher corporate spending, particularly on software-as-a-service (SaaS) applications. These applications are used by enterprises to manage customer, sales and operational data.

Forrester estimates that 25.0% of the total of $523.0 billion of software applications will be available on a SaaS basis by 2020. Per IBM IBM, 85.0% of new software is being developed for cloud and 25.0% of the world's apps will be available on the cloud by 2016.

IDC aggressively estimates that SaaS delivery will constitute about 14.2% of all software spending and 18.0% of all applications spending by 2016. IDC's 21.3% compound annual growth rate (CAGR) forecast for SaaS reflects the strength of the new business model.

Badly Beaten Stocks Now Cheap

Although the ongoing momentum stock sell-off has badly affected cloud-based stocks, we believe that these stupendous growth projections are hard to ignore. The high expectations have not only attracted start-ups but also traditional software providers such as Oracle ORCL, IBM, Hewlett-Packard HPQ, Microsoft MSFT and SAP AG SAP, overcrowding the market.

This has made it difficult for investors to select the right scrip. Below we pick three exciting cloud-based software stocks that are expected to exponentially benefit from a higher enterprise spending and at the same time sport a good Zacks Rank.

Brightcove Inc BCOV – Brightcove's flagship product Video Cloud helps users to distribute high quality video to Internet-enabled devices quickly, easily and in a cost-effective way. The company added 61 new premium customers (35 from Unicorn Media acquisition), bringing its total tally to 6,126 at the end of the first quarter.

This Zacks Rank #1 (Strong Buy) stock reported an impressive first-quarter 2014, beating the Zacks Consensus Estimate by 46.67% (7 cents). Revenues jumped 26.0% from the year-ago quarter to $31.1 million, with 41.0% coming from the media segment.

For the rest of 2014, Brightcove has significant growth opportunities from the synergies of Unicorn Media acquisition and new product launches (Video suite, Gallery for marketers).  

Synchronoss Technologies SNCR – Synchronoss provides mobile cloud solutions and software-based activation for connected devices. The company has a strong clientele that includes AT&T, Verizon Wireless, Vodafone, Comcast and Apple.

This Zacks Rank #1 stock reported a stellar first-quarter 2014, beating the Zacks Consensus Estimate by 15.38% (4 cents). Revenues surged 24.0% year over year to $98.7 million, driven by 83.0% year-over-year growth in cloud services revenues.

Synchronoss is expected to benefit from new customer wins, upcoming launch of Apple's iPhone 6 and the removal of uncertainty surrounding Comcast/TWC merger.

Marketo Inc MKTO – Marketo offers an integrated suite of applications that comprises of marketing automation, social marketing, sales insight, revenue analytics, marketing management and real-time personalization. The company's customer base (3,215) includes the likes of General Electric, Medtronic, Moody's, Symantec and Sony.

This Zacks Rank #2 (Buy) stock reported better-than-expected first-quarter 2014, beating the Zacks Consensus Estimate by 20.51% (8 cents). Revenues surged 64.0% year over year to $32.3 million, driven by approximately 63.0% year-over-year growth in subscription and support revenues.

Marketo has immense growth potential due to growing footprint in the small & medium business segments as well as enterprises, increasing strength in the emerging B2C market, strong product portfolio and expansion opportunities in overseas markets.

Conclusion

Real-time and time-sensitive applications are expected to drive cloud adoption over the next several years. We believe that the mainstream adoption of Big Data analytics, Bring Your Own Device (BYOD) and Internet of Things will further compel enterprises to spend more on cloud-based software, services and resources, going forward.