Three best cloud computing stocks to buy right now

Facing disruptions fueled by a pandemic, many organizations cut spending on information technology last year to keep their businesses running. However, as 2021 begins and the effects of COVID-19 and related economic blocks ease, IT spending is coming back – and cloud computing is responsible for an increasing share of IT budgets. All indications are that another decade of torrid growth is ahead for this increasingly important industry.

With that in mind, I think Anaplan (NYSE: PLAN), Medallia (NYSE: MDLA), and salesforce.com (NYSE: CRM) would make stock purchases in a timely manner now.

Anaplan: Using data in the cloud to make better plans

Of about $ 3.75 trillion technology researcher Gartner (NYSE: IT) expects to be spent on IT worldwide by 2021 (up 4% from 2020), enterprise software could be a key growth area. Software is an intangible asset and is easy to shut down when an organization is trying to control how much money is coming out of its coffers. But as projects are reactivated in early 2020, the software will be just as easy to connect and deploy again. Gartner believes that business software will outpace overall IT spending growth, with an increase of more than 7% over the next year.

This is the realm in which Anaplan operates. Specifically, Anaplan offers a cloud-based enterprise resource planning (ERP) service enhanced by AI, software that helps organizations plan a diverse set of scenarios, from budgeting to supply and demand forecasting to marketing. performance. Anaplan has some important advantages over its legacy software peers, however. It is native to the cloud, so a general migration to cloud computing makes Anaplan an ideal fit with modern technology infrastructure. It was also built to be collaborative, a basic staple, as many workforces are working remotely, rather than together within an office. And, since machine learning is built into their service, planning teams can obtain additional information about potential results and plan more for contingencies.

The superiority of Anaplan software is in the numbers. Like other enterprise software companies, revenue took a hit last year when customers slammed on new spending. However, a “bad year” for Anaplan still represented a sales growth of 30% during the first nine months of the company’s 2021 fiscal year (period ended October 31, 2020). As Anaplan begins to overcome the initial effects of last spring’s pandemic, I think there is a good chance that the company’s revenue will accelerate.

It is true that there are reasons why an investor can stop before investing in Anaplan. Free cash flow was negative by $ 27.8 million in the first nine months of the year, and is unlikely to fall into positive territory anytime soon, as the company is spending heavily to maximize growth now. Even so, Anaplan had a large cash balance of $ 297 million at the end of last October. Traded 23 times, after 12-month sales, the shares look like a long-term value given Anaplan’s current growth and long-term potential in an ERP space worth tens of billions of dollars a year in annual spending.

Two people portrayed off-screen working on multiple laptops.

Image source: Getty Images.

Medallia: The rise of digital experience monitoring

Speaking of companies with AI built into their platforms, Medallia looks like a solid choice in the digital experience market. Medallia is a customer and employee experience service that captures digital signals to measure an experience in an application or some other digital interaction. Medallia’s AI analyzes and predicts user interaction and provides actionable steps for the company to improve.

This is the same sandbox that Qualtrics XM plays in, a company that recently re-debuted as a public concern after SAP dismembered it via IPO. SAP acquired Qualtrics in 2019 for $ 8 billion, but Qualtrics is now valued at almost $ 25 billion, about 30 times behind 12-month sales. In contrast, Medallia is valued at a market capitalization of $ 6.2 billion, less than 13 times behind sales in 12 months.

Medallia trades for a relative amount for a reason. Revenue increased “only” 20% over three quarters of the company’s 2021 fiscal year, impacted by trends in spending on business software similar to those of Anaplan. Medallia is also not profitable yet, operating with a negative free cash flow of $ 26.0 million over the same nine-month period. But with $ 654 million in cash and short-term equivalents offset against a $ 442 million convertible debt at the end of last October, Medallia is in good shape.

As organizations renew their digital budgets this year, the growth of Medallia’s software may also increase again. And less than 13 times behind 12-month sales, I think this stock is a real value. Digital experience software is a powerful tool that helps companies reduce the number of customers and employees that leave. This kind of continuous application improvement – new territory for many companies that adapt to times of rapid change – is invaluable. In a new era based on the cloud, I think Medallia is just beginning.

Salesforce: an emerging cloud platform leader

The stories of Anaplan and Medallia are about growth and reaching a profitable scale, but Salesforce pioneered the cloud already reached that point in its journey years ago. Salesforce is currently busy transforming from a niche software service (sales and service relationship management) to a fully developed enterprise software platform. The company is rapidly becoming a central part of the digital toolkit for many organizations and is achieving this by acquiring smaller pairs and connecting them to its ecosystem. This is putting Salesforce on a collision course with Microsoft and other giants of cloud computing.

His latest acquisition, the pending acquisition of a collaboration specialist Day off, is the largest so far. The move aims at the future of work, which Salesforce believes will favor remote employees who work with each other remotely over the Internet. Salesforce’s shares fell about 20% from all-time highs, reflecting the risk that Salesforce’s spending will not pay off. I am buying the setback, however.

There are two reasons. First, the company has a long history of making acquisitions and turning them into highly profitable members of the Salesforce family (or Ohana, as Salesforce calls it). I don’t see fast-growing Slack working differently. And, second, Salesforce could also benefit from a recovery in IT spending in 2021. After all, although the company remained in double-digit percentage growth mode last year, it was not a quiet period. Many of its customers suffered during the pandemic, and a gradual easing of corporate budgets is bound to turn into a higher cloud platform activity, such as that offered by Salesforce.

This is a stock with a premium price of almost 60 times, behind the free cash flow of 12 months. But Salesforce has a mission to become one of the largest software companies in the world, and its success so far makes me optimistic that it will achieve its ambitious goals. Mainly responsible for getting the cloud revolution started in the first place, this remains a central part of my portfolio and is worth another purchase after the post-Slack acquisition announcement.

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