Major technology companies had a field day during Covid-19. The past year has been a roller coaster of emotions for many people in the tech industry. For Silicon Valley, they finally had the keys to the castle. But now that the pandemic is being mitigated, everyone is asking whether software stocks will continue to do well.
There is a lot of pent-up demand for outdoor activities. The travel and leisure industry is also reporting positive numbers. Hotel reservations, especially around the holidays, are up substantially as people look to get back into the swing of things.
Consequently, we are seeing several consumer discretionary names make a long-overdue comeback. But this change in sentiment is not great if you are a tech stock investor.
Many prominent software companies are taking a hit as people venture outside their homes and spend less time online. That means now is an ideal time to take a position in certain outstanding post-Covid software stocks with excellent fundamentals.
If you are looking to invest in the future of businesses, then these stocks may be just what your portfolio needs. By thoroughly analyzing their business and financials, you can determine which company best suits your unique portfolio needs.
So, without further ado, let’s take a look at seven software stocks trading at an excellent discount:
- DocuSign (NASDAQ:DOCU)
- Zoom Video Communications (NASDAQ:ZM)
- Palantir (NYSE:PLTR)
- Uber (NYSE:UBER)
- Alibaba Group Holding (NYSE:BABA)
- Take-Two Interactive Software (NASDAQ:TTWO)
- Twitter (NYSE:TWTR)
Software Stocks: DocuSign (DOCU)
DocuSign has been a leader in the space of e-signature solutions. Its products help companies decentralize workflows, increasing efficiency.
At its core, DocuSign helps businesses codify agreements that are at the heart of every business transaction. This is why so many companies have a use case for its product suite.
Its services can be used by every company that needs to send and sign documents electronically, including non-disclosure agreements, sales contracts and vendor purchase orders. DocuSign’s total addressable market (TAM) is about $50 billion.
The pandemic forced companies to employ a proactive approach to their digital infrastructure needs. As DocuSign’s business growth accelerated, the company signed on thousands more clients.
DocuSign’s success in the last quarter has been a major milestone for the company and its customers. With about 1.11 million total users, Docusign is growing exponentially thanks to a pandemic-driven increase in its user base.
The great thing is that the growth is not slowing down. The e-signature solution provider reported earnings for the third quarter of fiscal 2022. Revenue grew 42% year-over-year (YOY) and operating margin came in at 22%.
However, CEO Dan Springer underscored that growth is stabilizing. “After six quarters of accelerated growth, we saw customers return to more normalized buying patterns, resulting in 28% year-over-year billings growth,” he said.
Nevertheless, the latest quarterly numbers are very impressive, and the move toward digital services is a secular trend. In this environment, DocuSign will keep doing well.
Zoom Video Communications (ZM)
The pandemic has caused millions to stay home, but many people find ways to socialize by hosting virtual parties. Additionally, workplaces suddenly needed an online platform for meetings. One popular method of staying connected has been Zoom video conferences, which allows a group to communicate virtually in real-time.
Several video conferencing companies did well during the pandemic. But Zoom quickly rose to the top of the food chain, leading to astronomical growth for the company in terms of subscribers.
However, all of this growth has not been without controversy. A security breach at Zoom last year caused concern among its users. Another issue is “Zoombombing,” where an uninvited person joins and disrupts a Zoom meeting. This usually happens for cheap laughs, but it wastes time and can be quite annoying.
CEO Eric Yuan apologized for these security lapses, and Zoom has released updates to combat them. Earlier this year, Zoom agreed to pay $85 million to settle a lawsuit. The company had violating users’ privacy rights by sharing personal data with Facebook (NASDAQ:FB), Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google and Microsoft’s (NASDAQ:MSFT) Linkedin.
In terms of fundamentals, Zoom continues to do well. It surpassed projections in the third quarter and issued upbeat guidance. It saw sales grow by 35% in October, beating analyst estimates.
The company reported that the profit for the last quarter was $1.11 per share, higher than estimates and beating investors’ expectations by a significant margin. Net income hit $340.3 million.
Nevertheless, investors are closely monitoring Zoom to see whether its online meeting platform can stave off competition from large tech giants like Microsoft and Google. That is why sentiment is bearish on this one.
Software Stocks: Palantir (PLTR)
Palantir Technologies is revolutionizing the way people access information. The company’s suite of software applications for integrating, visualizing and analyzing data provides users with a powerful analytical tool. Government organizations worldwide have used Palantir to solve serious problems in intelligence gathering and military missions, like counterintelligence operations or counterterrorism efforts.
The stock did very well upon its debut last year. But it has cooled down since then. Several factors are contributing to the bearish sentiment. For one thing, lawmakers are wary of the close relationship between Palantir and the U.S. defense establishment. Members of Congress have voiced their apprehensions on several occasions.
Consequently, possibilities of regulatory activity loom large over this one. Additionally, Palantir has had a tough time growing its commercial business. It has managed to land some high-profile contracts. But the segment still pales in comparison to its government business.
A contrarian view, though, is that defense is a bipartisan issue. At the end of the day, if Palantir is the best contractor for an assignment, the opposition will be muted.
Time and again, Palantir has won significant contracts for itself in the last few years. The number of government agencies that trust Palantir is outstanding. And that is the main reason investors will remain interested despite the threat of regulatory activity.
There might be other software stocks out there offering more stability. But Palantir is a growth stock like no other.
Investors have been pushing for Uber to start posting a profit. The company has been losing vast amounts of money, but it finally posted its first profitable quarter in November. It’s unclear if the turnaround is sustainable, especially with such ambitious goals attached.
Last year was a tough one for the ride-hailing giant. However, it managed quite well through cost-cutting measures, making itself dramatically leaner. That helped decrease its aggregate loss to $6.8 billion last year compared to $8.5 billion in 2019.
It became clear that certain aspects of the business just didn’t fit within its core aims. These non-priority ventures included things like self-driving cars and substantial discounts to attract customers. Consequently, Uber decided to do away with these initiatives. The stock popped in response, so it’s safe to say investors liked the moves.
Meanwhile, Uber is incredibly active in the mergers and acquisitions (M&A) space. Look no further than its $2.65 billion all-stock deal to purchase the food delivery app Postmates.
It was a bold move, especially at the height of the pandemic. But it compliments its fast-growing business segment, Uber Eats. When its ride-hailing business suffered during the pandemic, its online food ordering platform was a saving grace.
Uber has been through some tough times. But it looks like things are finally turning around. Still, UBER stock suffers from bearish sentiment.
Perhaps investors were sick and tired of waiting for a profit, or they doubt it can remain profitable. Maybe they believe the recent driver shortage will continue to affect the ride-hailing giant for the next few quarters. Whatever the case, Uber is trading very close to its 52-week low, which is great news for value investors.
Software Stocks: Alibaba (BABA)
Alibaba is often referred to as China’s version of Amazon (NASDAQ:AMZN). Along with several other offerings, Alibaba has a software arm called Alisoft.
Much like other e-commerce companies, Alibaba did very well last year. Its revenue reached 717.2 billion Yuan (approximately $112 billion) in fiscal 2021, making it one of China’s most valuable companies. But in the last few months, things have taken a turn for the worse.
Much of it has to do with China’s regulatory takedown of Alibaba. In April, Chines regulators levied a record $2.8 billion fine against the conglomerate for abusing its market position. The punishment amounts to about 4% percent of its 2019 domestic revenue.
The U.S. has a different regulatory environment compared to China. Beijing exercises tremendous control over its stock market. Therefore, investors need to put developments like the Alibaba fine into context.
Interestingly, when the fine became public knowledge, the markets responded positively. Investors felt the e-commerce giant escaped with only a slap on the wrist.
It is also worth considering that Alibaba is a larger enterprise, with 258,578 full-time employees as of Sept. 30. Chinese regulators will not be too heavy-handed in their approach.
Therefore, the major issue that Alibaba needs to take into account is increasing competition in its sector. Customer management revenue, or CMR, grew just 3% YOY in its fiscal second quarter due to “slowing market conditions and more players in the China e-commerce market.”
On a positive note, the stock is trading at a steep discount to other e-commerce giants. Additionally, the next time Alibaba reports earnings, the figures will include the impact of Singles Day: a Chinese spending holiday when e-commerce platforms generate billions of dollars every year. Alibaba earned 540.3 billion yuan ($84.5 billion) during the latest event.
As we gear up for the traditional holiday season, BABA is one of the best software stocks to buy.
Take-Two Interactive Software (TTWO)
Take-Two Interactive Software is a video game company that publishes titles under two iconic labels: Rockstar Games and 2K. Under these umbrellas, the company operates several successful video game franchises, including BioShock, Borderlands and Grand Theft Auto.
Due to the pandemic, TTWO stock did very well. However, the video game giant shows no signs of slowing down. Most recently, it reported fiscal second-quarter earnings. It beat analyst expectations yet again.
Take-Two posted fiscal second-quarter net income of $10.3 million, or 9 cents per share. Net bookings, a form of revenue that firms and investors prefer because it factors in deferred income, increased 3% YOY to $984.9 million.
The company is confident that its full fiscal year net bookings will range between $3.3 billion and $3.4 billion. Consensus expectations are for the company to report $3.43 billion for the period.
“We experienced consistently strong engagement trends across our key franchises, underscoring the durability of our offerings and the deep relationships that we have established with new, existing, and returning players,” CEO Strauss Zelnick stated in the earnings release.
However, TTWO stock is trading at a relative discount because of delays in key titles. Take-Two expects to release Marvel’s Midnight Suns in the second half of next year. Meanwhile, remastered versions of Grand Theft Auto V and Grand Theft Auto Online will launch in March instead of the previously-announced date of Nov. 11.
Nonetheless, every setback is an opportunity. Consequently, investors should see this as the ideal time to add more TTWO stock to their portfolio.
Software Stocks: Twitter (TWTR)
Twitter is one of the best software stocks out there at the moment. In November, it lost a considerable amount of steam due to a broader selloff of growth stocks prompted by the Federal Reserve’s plans to tighten its monetary policy.
It also did not help that Jack Dorsey stepped away from his role as CEO. The departure of the Twitter co-founder and CEO of Block sent the stock tumbling. Then-Chief Technology Officer Parag Agrawal became CEO immediately.
Agrawal quickly restructured his leadership team, which elicited mixed reactions from investors. But he wasted little time getting to work. On Dec. 7, Twitter announced the purchase of Quill — a messaging app similar to Salesforce’s (NYSE:CRM) Slack.
Overall, advertising revenue came in at $1.14 billion, gaining 41% YOY but slightly missing analysts’ estimates. Monetizable daily active users (mDAUs) reached 211 million. Its overall growth in users was 13%.
Undoubtedly, this is a challenging time for Twitter. Considering the ubiquitous nature of its service, it is only a matter of time before TWTR stock makes a comeback.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.