Shares of the low-code app-creating company Appian Corporation (APPN 4.19%) skyrocketed 300% in 2020 as investors put their money in companies they believed could perform well during a recession and pandemic. Clearly, those investors haven't been disappointed, but with Appian's stock gaining so much in 2020, is the company still a buy?
I think there are two reasons why this tech stock still has room to grow in the coming years and why investors may want to consider picking up some shares.
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Demand for apps is accelerating
Apps have spilled over into nearly every aspect of our lives over the past decade. Since Apple's App Store launched 12 years ago with just 500 apps, we've gone from using them to surf the web to track our sleep patterns, hail a ride, and even donate blood. Between Google's and Apple's app stores, there are nearly 5 million apps available today. But the demand for them continues to rise.
The market size for mobile apps was $106 billion in 2018 and will be worth an estimated $407 billion by 2026. Additionally, demand for software developers continues to increase, but there still aren't enough workers to fill the demand.
Some companies will inevitably realize that they may not need full-time app developers and instead turn to low-code app-creation platforms like Appian.
If you're skeptical that apps can't be made by people who aren't developers, consider how much website-building technology has changed over the past few years. A professional-looking website can be made by nearly anyone in a just a day and without a lot of money using a simple website builder and templates. The same is becoming true for some app development.
Appian's core business is getting stronger
Appian's growth has come mainly from its subscriptions, which accounted for 66% of the company's revenue in the third quarter, up from 57% in the year-ago quarter. This is an important segment for the company because gross margins for subscriptions are an impressive 90%, compared to the company's 40% margins for its professional-services segment.
Not only are cloud subscriptions lucrative, but they're also increasing quickly. Cloud-subscription revenue popped 40% in the third quarter, and the company's management estimates that they'll increase 34% for the full-year 2020.
The company is a buy, but don't expect similar returns
Based on Appian's ability to tap into the low-code platform market and its steady growth of lucrative cloud subscriptions, I think the company's stock is a buy for 2021. But investors should keep in mind that the astronomical share-price gains Appian's stock experienced in 2020 are unlikely to be repeated in 2021.
Lockdowns and social distancing created by the pandemic created a surge of investments in tech stocks this year that is unlikely to be repeated in 2021. I think Appian is still a great long-term investment, but investors should keep their expectations in check when buying this or any stock in the coming year.
