The software-as-a-service (SaaS) industry is driven by the growing reliance on SaaS solutions that offer real-time threat intelligence and monitoring capabilities, rising demand for payment gateways, and inventory management in the e-commerce sector.
Amid such conducive trends, investors could consider watching high-growth SaaS stocks, Palantir Technologies Inc. (PLTR), Twilio Inc. (TWLO), and DocuSign, Inc. (DOCU).
As the adoption of cloud-based services continues to grow, there has been a noticeable shift towards SaaS solutions in the public cloud market. A desire for greater flexibility and cost-effectiveness and the need for faster deployment and scalability drives this trend.
Additionally, the rise of remote work and the reliance on digital tools has further accelerated the demand for SaaS offerings. The U.S. SaaS market is predicted to be worth around $412.14 billion by 2034, at a CAGR of 13.5% from 2024 to 2034.
Considering these factors, let’s take a look at the fundamentals of the three Software - SAAS stocks, beginning with the third one.
Stock #3: Palantir Technologies Inc. (PLTR)
PLTR builds and deploys software platforms for the intelligence community to assist in counterterrorism investigations and operations in the United States, the United Kingdom, and internationally.
On November 13, 2024, PLTR renewed its multi-year enterprise agreement with the Rio Tinto Group, one of the world’s leading mining and metals groups. The agreement extends the enterprise agreement for an additional 4 years and secures Rio Tinto’s ongoing access to the Palantir Artificial Intelligence Platform (AIP).
In terms of the trailing-12-month gross profit margin, PLTR’s 81.10% is 60.6% higher than the 50.51% industry average. Likewise, its 5.46% trailing-12-month Return on Total Capital is 78.9% higher than the 3.05% industry average.
PLTR’s revenue for the fiscal third quarter, which ended September 30, 2024, increased 30% year-over-year to $725.52 million. In addition, its adjusted net income attributable to PLTR and adjusted EPS stood at $241.56 million and $0.10, up 55.8% and 42.9% year-over-year, respectively.
Analysts expect PLTR’s revenue for the fourth quarter ending December 2024 to increase 27.6% year-over-year to $776.20 million. Its EPS is expected to increase 38.1% year-over-year to $0.11 for the same quarter. It surpassed Street revenue and EPS estimates in each of the trailing quarters.
Its revenue has grown at a CAGR of 22.7% over the past three years, while its total assets have grown at a CAGR of 21.4% over the same period. Shares of PLTR have gained 106.86% over the past three months to close the last trading session at $65.74.
PLTR’s POWR Ratings reflect its outlook. PLTR has an A grade for Quality and a B for Growth. It is ranked #15 among 18 stocks in the A-rated Software - SAAS industry. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Click here to access the additional PLTR ratings (Momentum, Stability, Sentiment, and Value).
Stock #2: Twilio Inc. (TWLO)
TWLO provides a customer engagement platform comprising international communications application programming interfaces. It operates through two segments: Twilio Communications and Twilio Data & Applications.
On October 1, TWLO and OpenAI collaborated to integrate OpenAI’s Realtime API into its platform. This integration will enable TWLO to build conversational AI applications and agents, which will bring customers more natural interactions to the platform.
On September 9, TWLO announced expanded accessibility of Rich Communication Services (RCS) messaging via its Programmable Messaging and Verify APIs to enhance branded and verified messaging and build customer trust in its source.
In terms of the trailing-12-month gross profit margin, TWLO’s 50.94% is marginally higher than the 50.51% industry average. Its 19.17% trailing-12-month levered FCF margin is 73.4% higher than the 11.06% industry average.
In the fiscal third quarter that ended on September 30, 2024, TWLO’s revenue increased 9.7% year-over-year to $1.13 billion with a GAAP gross margin of 51% (up 100 bps year-over-year). The company reported non-GAAP income from operations of $182.42 million, indicating a 33.7% increase from the prior-year quarter.
TWLO’s non-GAAP net income came in at $163.92 million, up 53.6% year-over-year, while its non-GAAP net income per share grew 75.9% from the year-ago value to $1.02.
According to the financial guidance for fiscal year 2024, the company’s non-GAAP income from operations is projected to be between $700 million and $710 million, with organic revenue growth anticipated to range from 7.5% to 8%.
The consensus revenue estimate of $1.16 billion for the fiscal fourth quarter (ending December 2024) represents a 7.8% increase year-over-year. The consensus EPS estimate of $1 for the same quarter indicates a 16.6% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
The company’s revenue and levered FCF have grown at CAGRs of 19.4% and 41.2% over the past three years, respectively. TWLO’s stock gained 48.2% over the past month to close the last trading session at $104.41.
TWLO’s fundamentals are reflected in its POWR Ratings. The stock has an A grade for Growth and a B for Sentiment and Value. TWLO is ranked #7 in the same industry.
Beyond what is stated above, we’ve also rated TWLO for Momentum, Stability, and Quality. Get all TWLO ratings here.
Stock #1: DocuSign, Inc. (DOCU)
DOCU provides cloud-based electronic signature solutions that enable sending and signing agreements, allowing organizations to do business faster with less risk and at a lower cost. It also offers contract lifecycle management software that automates workflows.
DOCU’s trailing-12-month ROCE of 70.34% is significantly higher than the industry average of 3.95%. Its trailing-12-month ROTC of 4.47% is 46.5% higher than the 3.05% industry average.
For the second quarter of 2025, which ended on July 31, DOCU’s total revenues increased 7% year-over-year to $736.03 million. Its non-GAAP income from operations stood at $237.16 million, indicating a 39.6% growth from the prior-year quarter.
DOCU’s non-GAAP net income rose 34.3% from the year-ago value to $200.99 million, while its non-GAAP net income per share stood at $0.97, up 34.7% year-over-year. Also, the company’s non-GAAP free cash flow grew by 7.8% from the year-ago value to $197.93 million.
Per the outlook for fiscal year 2025, DOCU expects its total revenue to be between $2.94 billion and $2.95 billion. It forecasts subscription revenue to range from $2.86 billion to $2.88 billion, with billings between $2.99 and $3.03 billion. Additionally, DOCU expects its non-GAAP operating margin to fall in the range of 29% to 29.5%.
Analysts expect DOCU’s revenue for the third quarter ended October 31, 2024, to increase 6.4% year-over-year to $745.33 million, while its EPS for the same period is expected to grow 10.6% from the prior-year quarter to $0.87. The company surpassed street revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The company’s revenue and levered FCF have grown at CAGRs of 16.8% and 17.7% over the past three years, respectively. The stock has gained 49.8% over the past six months, closing the last trading session at $85.30.
DOCU’s POWR Ratings reflect bright prospects. The stock has an A grade for Quality and a B for Value and Growth. It is ranked #3 in the same industry.
In addition to the POWR Ratings highlighted above, one can access DOCU’s ratings for Momentum, Stability, and Sentiment here.
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
PLTR shares were trading at $65.89 per share on Wednesday afternoon, up $0.15 (+0.23%). Year-to-date, PLTR has gained 283.75%, versus a 27.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
3 High-Growth SaaS Stocks to Watch StockNews.com
