The software industry is experiencing exponential growth driven by its indispensable role in our daily lives. Moreover, perennial trends such as digitalization, cloud computing, and artificial intelligence are fueling sustained demand for software solutions.
With that in mind, join me as I explore the top-rated software stocks ServiceNow, Inc. (NOW), Autodesk, Inc. (ADSK), and Docebo, Inc. (DCBO). These promising stocks are positioned to streamline your investment voyage and unlock potential returns.
Digitalization is revolutionizing industries worldwide by integrating digital technologies into everyday processes. As businesses increasingly embrace digital technologies, the demand for software products and services continues to grow, reinforcing the pivotal role of the software industry in shaping the future of global business.
Gartner predicts that spending on software is projected to rise 12.7% year-over-year to $1.03 trillion this year.
Moreover, the software sector is on the rise due to the proliferation of big data and the increasing adoption of artificial intelligence (AI) and machine learning (ML) technologies across various sectors. Besides, the U.S. market also sees significant demand for enterprise software applications catering to businesses of all sizes.
The software sector in the U.S. is projected to reach $353.50 billion this year. Looking ahead, the industry is expected to expand at a CAGR of 4.1%, reaching $414.70 billion by 2028.
On top of it, investors’ confidence in the growth prospects of software stocks amid ongoing technological advancements and evolving business needs is reflected in the robust performance of the iShares Expanded Tech-Software Sector ETF (IGV), which has returned 53.5% over the past year.
Given the industry tailwinds, it's time to examine the fundamentals of the software industry's top three stocks.
ServiceNow, Inc. (NOW)
NOW provides enterprise cloud computing solutions that define, structure, consolidate, manage, and automate services for enterprises worldwide. The company operates the NOW platform for workflow automation, AI, process mining, machine learning, performance analytics, and other applications.
On February 27, NOW announced that it had partnered with Experis to address the IT skills gap, with Experis becoming a RiseUp ServiceNow Placement Partner. This collaboration aims to upskill individuals globally in ServiceNow technologies through the Experis Academy, focusing on candidates with adjacent skills and the right behaviors.
Moreover, on February 26, NOW announced that it had signed an agreement to acquire NetACE™ network management and automation technology from Atrinet to accelerate business transformation for telecommunications companies (telcos). This acquisition aligns with NOW's commitment to developing industry-specific solutions to drive productivity, efficiency, and business transformation.
During the fiscal fourth quarter that ended December 31, 2023, NOW’s subscription and professional services revenue rose 27.2% year-over-year to $2.37 billion. Its total revenue grew 25.6% from the previous-year quarter to $2.44 billion. The company’s non-GAAP net income grew 38.6% over the prior-year quarter to $643 million. Also, its non-GAAP net income per share came in at $3.11, representing an increase of 36.4% year-over-year.
For the first quarter of 2024, ending March 2024, NOW expects its subscription revenues to be between $2.51 billion and $2.52 billion.
NOW’s revenue and EPS are expected to rise 21.5% and 21.9% year-over-year to $13.14 and $10.90 billion in the fiscal year 2024. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 83.6% to close the last trading session at $779.49. It has returned 10.3% year-to-date.
NOW’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and a B for Quality and Sentiment. Within the B-rated Software – Business industry, it is ranked #10 of 44 stocks.
In addition to the POWR Ratings stated above, one can access NOW’s additional ratings for Value, Momentum, and Stability here.
Autodesk, Inc. (ADSK)
ADSK provides 3D design, engineering, and entertainment technology solutions worldwide. The company offers AutoCAD Civil 3D, BuildingConnected, AutoCAD, AutoCAD LT, CAM software, Fusion 360, and Industry Collections for professionals in various industries, including civil engineering, preconstruction, design, manufacturing, and media.
On February 7, ADSK announced the launch of Autodesk Informed Design, a cloud-based solution that links design and manufacturing processes to streamline building design and construction. This platform enables architects to utilize customizable, pre-defined building products for valid results and allows manufacturers to share their products with design stakeholders.
Moreover, in the same month, ADSK announced an agreement to acquire the PIX business of X2X, a production management solution for secure review and content collaboration in the media and entertainment industry. This acquisition aims to enhance collaboration and communication while increasing efficiency in production processes.
ADSK’s total subscription and maintenance revenue rose 10.2% year-over-year to $1.35 billion in the fiscal fourth quarter ended January 31, 2024. Its total net revenue improved 11.5% year-over-year to $1.47 billion. Additionally, the company’s non-GAAP net income per share came in at $2.09, representing an increase of 12.4% year-over-year.
For the fiscal first quarter ending April 2024, ADSK expects its revenue to range from $1.39 billion to $1.40 billion. Its non-GAAP EPS is expected to be between $1.73 and $1.78.
Street expects ADSK’s EPS and revenues to grow 6.3% and 9.9% year-over-year to $8.08 and $6.04 billion, respectively, in the fiscal year ending January 2025. It surpassed the Street revenue estimates in each of the trailing four quarters.
The stock has gained 29.8% over the past year to close the last trading session at $258.53.
ADSK’s POWR Ratings reflect its rosy prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary system.
It has an A grade for Quality and a B for Growth. It is ranked #17 out of 132 stocks in the B -rated Software – Application industry.
Click here to see ADSK’s Value, Momentum, Stability, and Sentiment ratings.
Docebo Inc. (DCBO)
Headquartered in Toronto, Canada, DCBO operates as a learning management software company that provides artificial intelligence (AI)-powered learning platforms in North America, Europe, and the Asia-Pacific region. It offers a Learning Management System (LMS) to train internal and external workforces, partners, and customers.
On February 23, DCB announced that it was selected by Major League Baseball (MLB) and the MLB Players Association as the learning solution platform to train players.
By the end of fiscal year 2023, DCB's customer base had grown to 3,759, up 10.8% from 3,394 at the end of 2022. Additionally, the Average Contract Value had significantly increased, rising to $51,689 per customer.
DCBO’s revenues for the fiscal fourth quarter ended December 31, 2023, increased 26.5% year-over-year to $40.03 million. Its gross profit rose 27.8% from the previous year’s quarter to $40.03 million. Also, its adjusted net income came in at $8.30 million and $0.25 per share, representing an increase of 144.9% and 150% year-over-year, respectively.
DCBO expects total revenue between $51 and $51.30 million, with a gross profit margin between 81% and 81.5% in the fiscal first quarter ending March 2024. Adjusted EBITDA is forecasted to be between 12.5% and 13.5% of total revenue.
Analysts expect DCBO’s EPS and revenues to rise 51% and 22.6% year-over-year to $0.95 and $221.65 million in fiscal year 2024, respectively. The company surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 40% to close the last trading session at $52.55. It has soared 8.6% year-to-date.
It’s no surprise that DCBO has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has an A grade for Growth, Sentiment and Quality. Within the Software – Application industry, it is ranked #12.
To see DCBO’s Value, Momentum, and Stability ratings, click here.
What To Do Next?
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NOW shares were trading at $738.53 per share on Friday afternoon, down $40.96 (-5.25%). Year-to-date, NOW has gained 4.54%, versus a 6.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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