11 Best TaaS Stocks to Buy Now
In this article, we discuss the 11 best tech-as-a-service (TaaS) stocks to buy now. If you want to read about some more tech-as-a-service stocks, go directly to 5 Best TaaS Stocks to Buy Now.
The International Monetary Fund (IMF) predicts that global growth will slow to 2.7% next year, the weakest pace seen since 2001. In a recent report, the world body forecast that the global GDP growth is expected to remain at about 3.2% in 2022, down from 6% in 2021. The US GDP growth is projected to be only 1% during this time, even as the benchmark indexes in the country register impressive gains on the back of easing fears around aggressive rate hikes at the end of the fiscal year.
The slowing economy would suggest that investors stay away from technology stocks that are traditionally seen as operating in the growth sector. However, shrewd investors now seem to understand that technology has permeated each aspect of human life and there are several prominent tech names, like Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:FB), that offer technology-as-a-service products immune from recessionary environments.
As the US economy tackles extremely high inflation and a very tight labor market, tech stocks have also had to contend with several significant interest rate increases that have taken the federal funds rate up from 0% to 3.75%-4% currently, with another 0.5% rate hike expected to come in December. Despite these pressures, big tech continues to dominate the S&P 500 and the NASDAQ Composite. Investors also seem unwilling to look beyond these popular tech names for growth strategies.
Technology-as-a-Service (TaaS) is powered by tech products and provided as services. Unlike the traditional generation of labor-based services, the services of TaaS companies are highly software-enabled, customizable to business contexts, and often virtually delivered by a system of hardware, software and people. Technology-as-a-Service is the rising future for technology sectors. This model has already been showcased in the computing industry. Nowadays, most successful companies in this industry are no longer hardware giants but those that also provide software services.
In 2022, more and more businesses are taking advantage of advances in technology. Improvements like near-ubiquitous high-speed broadband, cheap data storage, simple payment solutions, micro-services, and growing acceptance among both consumers and C-level leaders of subscription model services, have been made at a rapid pace. Altogether, these developments create a technology eco-system where software, platforms and services have moved out of the office and changed into server centers in the cloud.
Photo by Joshua Mayo on Unsplash
The companies that offer tech-related services were selected for the list. Special importance was assigned to outlining the basic business fundamentals and analyst ratings for each firm to provide readers with some context so they can make more informed investment choices. Data from around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Best TaaS Stocks to Buy Now
11. DocuSign, Inc. (NASDAQ:DOCU)
Number of Hedge Fund Holders: 38
DocuSign, Inc. (NASDAQ:DOCU) provides electronic signature software in the United States and internationally. On December 8, DocuSign posted earnings for the third quarter of 2022, reporting earnings per share of $0.57, beating market estimates by $0.15. The revenue over the period was $645.5 million, up 18.3% compared to the revenue over the same period last year and beating market estimates by $18.27 million.
On December 9, BofA analyst Brad Sills maintained a Neutral rating on DocuSign, Inc. (NASDAQ:DOCU) stock and lowered the price target to $65 from $80, noting that healthy billings upside from early traction with new go-to-market initiatives was reported by the firm.
Among the hedge funds being tracked by Insider Monkey, St. Petersburg, Florida-based investment firm Fisher Asset Management is a leading shareholder in DocuSign, Inc. (NASDAQ:DOCU) with 5.5 million shares worth more than $294.6 million.
Just like Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:FB), DocuSign, Inc. (NASDAQ:DOCU) is one of the best TaaS stocks to buy now according to elite investors.
In its Q3 2022 investor letter, Rowan Capital Street, an asset management firm, highlighted a few stocks and DocuSign, Inc. (NASDAQ:DOCU) was one of them. Here is what the fund said:
“In the case of DocuSign, Inc. (NASDAQ:DOCU), the “Management” part no longer satisfies our requirements to remain in our investment portfolio. In the past 6-9 months, the company has had a huge turnover in both employees and upper management. In June of 2021, the board decided to get rid of Dan Springer, who had been the CEO of DocuSign since 2017 and took the company public in 2018. We found this decision strange as we thought that he did a great job growing the company over the past 5 years (revenues grew almost 5x from $519 million in 2017 to an estimated $2.4 billion this year).
Dan was faced with a very difficult, unprecedented operating environment just like all the CEOs of SaaS companies. From Q2 ‘20 until Q3 ‘21, during pandemic shutdowns, growth exploded from about 30% to 60%+, as there was a ton of pull-forward demand. The business doubled in about 6 or 7 quarters! As the world opened up after the pandemic, growth slowed quite a bit, especially in comparison to these abnormal pandemic quarters. However, on a 3-year CAGR basis, growth was still very healthy (sales grew from $974 million in 2019 to $2.5 billion expected in 2022). They also had to dramatically increase their sales force (the biggest expense) to keep up with all this unexpected growth. New employees did not have a chance to be trained properly, but it still worked well as they had demand easily coming to them. Now that there is a very different demand environment, a lot of this salesforce either need to be retrained for normal sales cycles (land and expand) or be replaced. Employee turnover also compounded with a lot of people who were with a company when the stock was going up and up, and now that the stock is down so much from the highs, their stock options are no longer valuable. Having said this, we are not sure any other CEO could have done a better job managing through such a difficult operating environment…read more
10. Zoom Video Communications, Inc. (NASDAQ:ZM)
Number of Hedge Fund Holders: 40
Zoom Video Communications, Inc. (NASDAQ:ZM) provides a unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. On November 7, AMC Theaters, an American movie theater chain, announced that it has made a partnership with Zoom Video to turn some AMC locations throughout the US into Zoom meeting rooms. Zoom Rooms at AMC will be available in up to 17 major US markets in 2023.
On November 22, Benchmark analyst Matthew Harrigan kept a Buy rating on Zoom Video Communications, Inc. (NASDAQ:ZM) stock and lowered the price target to $102 from $118, noting that the company showed below-consensus fiscal fourth-quarter sales guidance and management’s intimations for F2024 growth were modest.
Among the hedge funds being tracked by Insider Monkey, St. Petersburg, Florida-based investment firm ARK Investment Management is a leading shareholder in Zoom Video Communications, Inc. (NASDAQ:ZM) with 10.9 million shares worth more than $801.5 million.
In its Q1 2022 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and Zoom Video Communications, Inc. (NASDAQ:ZM) was one of them. Here is what the fund said:
“What about the other asset class that has attracted the most attention from the investment community in recent times? Here we can distinguish three major groups. First, those companies without earnings that had convinced investors of their great future growth prospects, pushing up their valuations to irrational levels. A clear example of this, which we mentioned almost two years ago is Zoom Video Communications, Inc. (NASDAQ:ZM) (“Zoom”), whose market cap exceeded that of companies such as IBM or came close to that of Cisco Systems. Well, from the time we wrote about this odd situation until today, Zoom shares have collapsed by nearly 80%.
Therefore, if interest rates rise (or are expected to rise), company valuations are negatively impacted. This is especially true for those businesses that generate little cash today and the market expects them to generate a lot of cash in the future. Hence the severe losses in companies that promised a lot of cash generation in the future (such as Zoom).”
9. Cloudflare, Inc. (NYSE:NET)
Number of Hedge Fund Holders: 53
Cloudflare, Inc. (NYSE:NET) operates as a cloud services provider that delivers a range of services to businesses worldwide. On December 13, Cloudflare announced a Project Safekeeping program to provide zero trust security solutions free of charge to medium-sized and small critical infrastructure organizations. The company said that this program is designed to protect under-resourced critical infrastructure organizations against cyberattacks and data breaches.
On November 4, RBC Capital analyst Matthew Hedberg maintained an Outperform rating on Cloudflare, Inc. (NYSE:NET) stock and lowered the price target to $60 from $74, noting that the company continues to navigate the macro environment and looks more resilient than most.
At the end of the third quarter of 2022, 53 hedge funds in the database of Insider Monkey held stakes worth $629 million in Cloudflare, Inc. (NYSE:NET), compared to 41 in the preceding quarter worth $541 million.
In its Q3 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Cloudflare, Inc. (NYSE:NET) was one of them. Here is what the fund said:
“We continued to build our position in Cloudflare, Inc. (NYSE:NET) during the quarter as the shares declined with the overall software space and the long-term risk/ reward balance became more compelling. The company reported a strong second quarter, with revenue growth accelerating to 54%, as well as better gross and operating margins. Third-quarter guidance was also ahead of Wall Street expectations. Given Cloudflare’s proprietary network and massive global scale, its software products have a disruptive price-performance advantage over competitors. As the company introduces new products as well as disruptive packaging/pricing, its unit-level economics should continue to improve over time, with the company already well ahead of its long-term gross margin target of 74%, reporting 78.9% for the second quarter. This drives strong cross/upselling activity with customers, reflected in strong net-dollar expansion rates of more than 125%. Indeed, in the most recent quarters, customers purchasing five or more products reached 81% of the base, six or more products reached 70% of the base, and seven or more products reached 58% of the base. Enterprise penetration continues to be a key long-term driver, with 1,749 customers now spending over $100,000 annually with the company, growing 61% and now accounting for over 60% of total revenue. With approximately 152,000 paying customers at the end of last quarter, large enterprise customers still represent just 1% of total paid customers and thus a material growth opportunity in the coming years. We continue to have high confidence in the company’s ability to innovate at a rapid pace (announced 20 new products or enhancements in September alone), package and bundle with disruptive pricing, and take material share in its large and growing addressable markets.”
8. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 62
Shopify Inc. (NYSE:SHOP) is a commerce company that provides a commerce platform and services worldwide. On November 29, Shopify Inc announced record-setting sales for Black Friday Cyber Monday weekend with a sales tally of $7.5 billion from independent businesses worldwide. The sales were up 19% from the sales generated during Shopify's Black Friday Cyber Monday weekend in 2021.
On December 9, SMBC Nikko analyst Andrew Bauch maintained an Outperform rating on Shopify Inc. (NYSE:SHOP) stock and raised the price target to $45 from $40, noting that the company is one of the few names with the potential to accelerate sales growth and expand margins simultaneously in 2023.
Among the hedge funds being tracked by Insider Monkey, St. Petersburg, Florida-based investment firm ARK Investment Management is a leading shareholder in Shopify Inc. (NYSE:SHOP) with 14.5 million shares worth more than $391.5 million.
In its Q3 2022 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and Shopify Inc. (NYSE:SHOP) was one of them. Here is what the fund said:
“Shopify Inc. (NYSE:SHOP) is a leading e-commerce platform supporting over 2 million merchants with software, online storefronts and payments technology. Like Uber, Shopify returned to the mid-cap territory during Q2 as the company’s profit cycle and share price faced significant pressure. Earlier this year, the company began a phase of investments to support a range of future growth drivers, including Shopify Plus for larger brands, logistics services, international expansion, point-of-sale payments and social media-based commerce. With high inflation putting pressure on consumer spending, and with e-commerce activity normalizing after a massive pandemic spike, Shopify’s earnings have fallen sharply. While we have outstanding questions about the likelihood of success for the company’s capital-intensive logistics investments, we decided to take advantage of the stock’s >75% YTD decline and initiate a GardenSM position at a deep discount to our PMV estimate. Our thesis is predicated on our belief there is still a long runway for commerce to move online, and Shopify is well-positioned to win a share of this market. The company has created an ecosystem of products (payment processing, financing, shipping, customer engagement tools, etc.), partners (TikTok, Google, Meta), sales channels and over 6,000 apps to help its merchants sell online and establish direct relationships with customers.”
7. Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 74
Datadog, Inc. (NASDAQ:DDOG) provides a monitoring and analytics platform for developers, information technology operations teams, and business users in the cloud in North America and internationally. On November 3, Datadog revealed that it acquired Cloudcraft, a visualization service to create real-time diagrams of cloud infrastructures. The company plans to continue offering Cloudcraft to existing and new customers. It will also enhance its capabilities by integrating with the Datadog platform.
On December 14, Oppenheimer analyst Ittai Kidron upgraded Datadog, Inc. (NASDAQ:DDOG) to Outperform from Perform with a $105 price target.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Tiger Global Management LLC is a leading shareholder in Datadog, Inc. (NASDAQ:DDOG) with 5.8 million shares worth more than $512.7 million.
In its Q3 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Datadog, Inc. (NASDAQ:DDOG) was one of them. Here is what the fund said:
“Similarly, we continued scaling up our investment in Datadog, Inc. (NASDAQ:DDOG), recognizing significant opportunities for the long term, while the majority of investors remain preoccupied with the here and now. While the company may see some short-term headwinds to growth (the company reported seeing some impact to its volume-driven logs and Application Performance Management modules), long-term prospects remain bright, in our view. Datadog reported a best-in-class gross retention rate in the “mid-to-high 90s%,” 74% year-over-year revenue growth, and 21% adjusted operating margins.”
6. Block, Inc. (NYSE:SQ)
Number of Hedge Fund Holders: 75
Block, Inc. (NYSE:SQ) creates tools that enable sellers to accept card payments and provide reporting and analytics and next-day settlement. On November 16, Block revealed that its Square payment systems for business will launch a new credit in collaboration with American Express. This credit card would be specifically launched for small businesses which use the company’s payment system.
On December 12, Mizuho analyst Dan Dolev maintained a Neutral rating on Block, Inc. (NYSE:SQ) stock and raised the price target to $70 from $69, noting the 2023 outlook for sub-sectors in the group against a backdrop of higher rates, high inflation, and a slowing macro.
Among the hedge funds being tracked by Insider Monkey, St. Petersburg, Florida-based investment firm ARK Investment Management is a leading shareholder in Block, Inc. (NYSE:SQ) with 9.2 million shares worth more than $505.5 million.
In addition to Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:FB), Block, Inc. (NYSE:SQ) is one of the best TaaS stocks to buy now according to elite investors.
In its Q2 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Block, Inc. (NYSE:SQ) was one of them. Here is what the fund said:
“Block, Inc. (NYSE:SQ) provides point-of-sale technology to small businesses and operates the Cash App ecosystem of financial services for individuals. Shares fell due to mixed quarterly results with more modest growth in the Seller business offsetting strength in Cash App. While the integration of recently acquired Afterpay is progressing well and credit metrics remain healthy, the buy-now-pay-later business slowed due to greater competitive intensity. We continue to own the stock due to Block’s long runway for growth, sustainable competitive advantages, and unique corporate culture.”
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Disclosure. None. 11 Best TaaS Stocks to Buy Now is originally published on Insider Monkey.