The global software industry is set for substantial and sustained growth as industries increasingly prioritize digital transformation, with the sector not only providing innovative solutions but also playing a significant role in shaping the dynamics of the evolving digital economy.
Therefore, investors could consider investing in top software stocks ServiceNow, Inc. (NOW), Tenable Holdings, Inc. (TENB), and WM Technology, Inc. (MAPS).
Rising enterprise data, automation, and increased cloud adoption, accelerated by pandemic remote work trends, drive growth in the business software and services market. Innovation with technologies like AI and blockchain enhances operational efficiency and cost-effectiveness for businesses across diverse sectors.
The global business software and services market is projected to grow at a CAGR of 11.9% from 2023 to 2030.
In addition, the Software as a Service (SaaS) market is growing due to the increased adoption of cost-effective public cloud services, though concerns about data security persist. Demand for smart devices and customizable CRM SaaS solutions contributes to market expansion. The global SaaS market is expected to expand at a CAGR of 13.7% from 2023 to 2030.
Furthermore, the global cybersecurity market is driven by rising cyber threats from e-commerce, smart devices, and cloud deployment. Advanced technologies like AI and IoT, coupled with strict data security regulations, fuel demand for adaptive security solutions.
The global cybersecurity market is estimated to grow at a CAGR of 12.3% from 2023 to 2030.
Considering these conducive trends, let’s examine the fundamentals of the three software stock picks.
ServiceNow, Inc. (NOW)
NOW delivers comprehensive enterprise cloud computing solutions, focusing on workflow automation, AI, and IT service management. The company serves diverse industries through direct sales and strategic partnerships.
On December 18, NOW acquired task mining firm UltimateSuite, aligning with its strategy to bolster automation and AI capabilities on the NOW Platform. The acquisition aims to streamline processes, identify bottlenecks, and drive efficiencies for accelerated digital transformation.
In the third quarter, which ended September 30, 2023, NOW generated total revenues of $2.29 billion, up 25% year-over-year. The company reported non-GAAP income from operations and net income of $676 million and $603 million, up 40.8% and 51.5% from the previous-year quarter, respectively.
Moreover, its non-GAAP net income per share grew 49% from the prior-year quarter to $2.92.
For the fiscal year 2023, the company projects a 25% year-over-year growth in subscription revenues, with an 84% increase in subscription gross profit, a 27% growth in income from operations, and a 30% rise in free cash flow.
NOW’s revenue and EPS are expected to grow 23.8% and 21.9% year-over-year to $2.40 billion and $2.78 for the fourth quarter ending December 2023, respectively. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
NOW’s shares increased 85.1% over the past year and 82.3% year-to-date to close the last trading session at $707.71.
NOW’s POWR Ratings reflect its positive prospects. The stock has an overall rating of B, equating 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.
NOW has an A grade for Growth and Sentiment and a B for Quality. Within the B-rated Software - Business industry, it is ranked #12 of 43 stocks.
In addition to the POWR Ratings stated above, one can access NOW’s additional Value, Momentum, and Stability ratings here.
Tenable Holdings, Inc. (TENB)
TENB offers global cyber exposure solutions, encompassing risk assessment, cloud security, and vulnerability management through platforms like Tenable.io. Its services include web application scanning, external attack surface management, and solutions for securing Active Directory and operational technology environments, along with Nessus for cybersecurity vulnerability assessment.
On October 26, TENB and Siemens Energy collaborated to enhance OT cybersecurity in the energy sector. Siemens Energy will integrate Tenable OT Security into its Omnivise T3000 control system for improved asset discovery and vulnerability management.
The integration addresses evolving cybersecurity challenges in energy work sites and is part of the next Omnivise T3000 service pack.
During the third quarter, which ended September 30, 2023, TENB's revenue and gross profit grew 15.3% and 14.3% from the previous-year quarter to $201.53 million and $155.78 million, respectively. The company's non-GAAP net income and EPS increased 61% and 53.3% year-over-year to $27.67 million and $0.23, respectively.
For the fiscal year ending December 31, 2023, TENB estimates the revenue to range from $789.40 million to $793.40 million and non-GAAP income from operations to be between $107.90 million and $108.90 million. Non-GAAP net income and EPS are anticipated to fall within $83 million to $84 million and $0.68 and $0.69, respectively.
In addition, unlevered free cash flow is expected to be in the range of $168 million to $173 million.
Analysts expect TENB’s revenue and EPS to rise 13.4% and 38.7% year-over-year to $214.15 million and $0.15, respectively, for the first quarter ending March 2024. The company surpassed the revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 22% over the past year and 19.2% year-to-date to close the last trading session at $45.47.
TENB’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Growth and Quality. Within the Software - Security industry, it is ranked #4 among 23 stocks.
To see TENB’s additional POWR Ratings for Value, Momentum, Stability, and Sentiment, click here.
WM Technology, Inc. (MAPS)
MAPS offers e-commerce and compliance software solutions for the global cannabis market through its Weedmaps marketplace. The platform enables users to explore, reserve, and learn about cannabis products. The company provides subscription-based business software solutions for retailers and brands operating internationally.
In the third quarter that ended September 30, 2023, MAPS reported net revenues of $47.73 million. The company's adjusted EBITDA amounted to $10.67 million, compared to the previous-year quarter’s loss of $9.63 million. Its total operating expenses declined 24.1% year-over-year to $53.27 million.
As of September 30, 2023, its total liabilities amounted to $63.91 million, compared to $84.26 million as of December 31, 2022.
For the fourth quarter of 2023, MAPS anticipates revenue to reach $47 million and non-GAAP adjusted EBITDA to be approximately $5 million.
Street expects MAPS’ revenue to be $47.05 million for the fourth quarter ending December 2023. Its EPS is expected to improve 96.6% year-over-year for the same quarter. The company surpassed the revenue estimates in each of the trailing four quarters.
MAPS’ shares declined 1.5% intraday to close the last trading session at $0.74.
MAPS’ POWR Ratings reflect a robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, and Sentiment. Within the A-rated Software - SAAS industry, it is ranked #6 of 22 stocks.
Click here for MAPS’ additional Momentum, Stability, and Quality ratings.
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NOW shares were trading at $706.17 per share on Wednesday morning, down $1.54 (-0.22%). Year-to-date, NOW has gained 81.88%, versus a 26.18% 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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