Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Many Cloud Computing Stocks Rose at Least 12% in January

By Anders Bylund - Feb 10, 2020 at 12:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Cloud computing is a red-hot target market right now, according to a plethora of optimistic analyst notes (and reported business results).

What happened

Cloud computing stocks had a very good month in January 2020. According to data from S&P Global Market Intelligence, customer service specialist Zendesk (ZEN 0.23%) gained 12.7% last month, customer management veteran salesforce.com (CRM -0.74%) rose 12.1%, and cloud-based communications expert Twilio (TWLO -1.25%) posted a surge of 26.5%.

These stocks booked nearly all of January's gains in the first two weeks of the month, powered exclusively by rosy analyst reports.

Ethernet cable plugged into a network jack with a white, cloud-shaped cover

Image source: Getty Images.

So what

Several analyst firms published earnings previews for Zendesk and Twilio in January, setting the stage for their earnings reports in the first week of February.

For example, Cowen analyst Derrick Wood reported strong results from his checks on Zendesk's target markets and anticipated accelerated billings growth in the fourth-quarter report. RBC Capital's Alex Zukin agreed with the projected sales rebound idea, noting that several large deals that slipped out of the third quarter appeared to have closed without further drama in the fourth quarter.

Wood painted the fourth quarter as a rebound period for Twilio as well, citing an attractive buy-in price due to temporary growing pains and a massive addressable target market where Twilio has only just begun to "scratch the surface." KeyBanc analyst Alex Kurtz also saw a wide open buy-in window for Twilio because the company is building some fantastic long-term growth engines while also expanding into adjacent markets.

Salesforce's next earnings report falls at the end of February, but the company still attracted some fawning analyst reports in January. Jefferies analyst Brent Thill argued that the market isn't appreciating the company's ability to generate organic sales growth at a consistent pace of roughly 20%. RBC Capital's Zukin flagged Salesforce as his top pick for 2020, projecting strong sales growth and solid margin expansion in 2021 and 2022.

Piper Sandler analyst Brent Bracelin summarized the cloud computing market's fundamental growth promise in a market report that placed both Twilio and Salesforce among the five best software-as-a-service (SaaS) investments in 2020.

Now what

As it happens, Twilio smashed Wall Street's fourth-quarter expectations, and Zendesk posted solid results alongside optimistic guidance for the next fiscal year. As rose-colored as the analyst view of these reports was in January, they were right on target. Wall Street is loving these high-octane growth stocks right now, and it's easy to see why.

Salesforce was one of the first SaaS specialists and is still going strong. Twilio and Zendesk are staring down much longer runways to growth in the years ahead, being younger and smaller. The common theme among all of these upbeat analyst reports is that many cloud computing services are growing up right now. These tools can be used to tackle many business tasks that used to require specialized systems -- sometimes developed and maintained by the client's own IT department. The cost savings and operating flexibility inherent in moving to the cloud are hard to ignore.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Salesforce.com, Twilio, and Zendesk. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Salesforce, Inc. Stock Quote
Salesforce, Inc.
CRM
$189.64 (-0.74%) $-1.42
Zendesk, Inc. Stock Quote
Zendesk, Inc.
ZEN
$76.65 (0.23%) $0.18
Twilio Inc. Stock Quote
Twilio Inc.
TWLO
$86.37 (-1.25%) $-1.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.