My Top 3 Growth Stocks to Buy in 2021

Over the last two decades, software-as-a-service (SaaS) has become an increasingly popular business model. For customers, it cuts upfront costs and improves scalability; for providers, SaaS reduces the cost revenue, which means higher margin and greater profitability.

Notably, salesforce.com (CRM -1.10%), CrowdStrike (CRWD 0.13%), and Zoom Video Communications (ZM -0.99%) are the fastest-growing SaaS businesses in history -- each reached $1 billion in annual recurring revenue (ARR) more quickly than any other SaaS provider.

Also noteworthy: Each business is led by a founder CEO who left a rival company to pursue innovation. That may sound trivial, but a passionate leader can make all the difference in the world. 

Here's why investors should consider these three growth stocks. 

Image source: Getty Images.

Salesforce: Customer relationship management

Today, Salesforce is the market leader in customer relationship management (CRM) software. It's also one of the largest SaaS companies in the world -- over 150,000 enterprises rely on its AI-powered Customer 360 platform, a suite of applications designed to improve sales, customer service, marketing, and commerce. But let's rewind to see how Salesforce achieved that success.

In 1999, Marc Benioff resigned as Oracle's vice president and co-founded Salesforce with a revolutionary vision: The end of software. Not literally, of course, but in the physical sense. Benioff saw the advantages of moving to the cloud, and that's how Salesforce quietly became the first SaaS company.

In fiscal 2009 (ended Jan. 31, 2009), Salesforce's revenue crossed the $1 billion threshold, making it the first cloud company to reach that milestone. Since then, it has also become the fastest SaaS company to reach $5 billion, $10 billion, and $20 billion in revenue.

That record-setting growth has allowed Salesforce to continue gaining market share, while Oracle has moved in the other direction.

Data source: International Data Corporation. CRM = customer relationship management.

According to Benioff, the company isn't done yet. During a recent earnings call, he predicted Salesforce would reach $50 billion in revenue by fiscal 2026, which would make it the fastest SaaS company to hit that mark, too.

Here's the takeaway: Given Salesforce's best-in-class software, strong leadership, and history of rapid growth, I think there's plenty of upside left. And management agrees -- in fact, during its recent investor day, Benioff put Salesforce's market opportunity at $175 billion by fiscal 2025. That's over eight times its trailing 12-month revenue of $22.3 billion.

CrowdStrike: Cybersecurity

In 2011, George Kurtz served as chief technology officer at cybersecurity firm McAfee. While on a business trip, Kurtz watched a fellow airline passenger start his computer and wait 15 minutes for McAfee software to load. Kurtz knew he could do better, so he left McAfee to start CrowdStrike.

Image source: Getty Images.

Notably, his previous experience led to three key innovations. First, CrowdStrike Falcon is a cloud-native platform. This reduces costs for clients, but it also allows CrowdStrike to collect massive amounts of data (i.e., from thousands of customers). Then, if a threat is detected in one environment, it can be blocked immediately for all other clients. In other words, the ability to crowdsource data gives cloud systems a significant advantage over on-premise solutions -- it's also where CrowdStrike gets its name.

Second, CrowdStrike analyzes all that data using artificial intelligence and behavioral indicators, allowing it to detect known and unknown malware, as well as more sophisticated malware-free attacks. By comparison, McAfee and many other legacy providers rely on signatures to stop threats, meaning they can only prevent known malware (i.e., they must have the malware's signature in their database).

Third, CrowdStrike offers 19 different software modules -- ranging from endpoint protection to threat intelligence -- but each application is accessed through a single lightweight agent. By comparison, McAfee requires clients to install multiple agents, which burdens the device and slows performance. For context, CrowdStrike uses less than 2% of a CPU's processing power, but McAfee consumes over 30% while scanning.

Driven by Kurtz's innovative ideas, CrowdStrike's business has grown rapidly. In fourth-quarter 2021 (ended Jan. 31, 2021), the company reached $1.05 billion in ARR, making it the third-fastest SaaS provider to hit that mark. Notably, the top two companies (Zoom and Salesforce) are both CrowdStrike customers.

Despite an impressive past, the company's future looks even brighter. Management believes its addressable market will expand from $36 billion in 2021 to $106 billion by 2025. That leaves a long runway for growth, and it's one more reason CrowdStrike looks like a good stock to add to your portfolio.

Zoom: Video conferencing

In 2007, Eric Yuan joined Cisco Systems when it acquired Webex, a videoconferencing platform. Eventually, Yuan realized clients were dissatisfied with the product, so he suggested a new system that would add smartphone compatibility. Cisco management rejected the pitch.

In 2011, Yuan left the IT giant and founded Zoom. From day one, he prioritized customer satisfaction. In fact, during the company's early years, Yuan personally emailed each client that canceled the service. That customer-centric culture has been a significant differentiator, helping Zoom gain market share rapidly.

Image source: Zoom.

By 2017, Zoom outranked Cisco in terms of overall customer satisfaction, according to Gartner Peer Insights. And by early 2018, it had surpassed Cisco Webex in terms of total customers, according to Okta's Businesses at Work report.

Last year, social distancing left people looking for new ways to work, learn, and engage with friends and family. That supercharged Zoom's growth, and by March 2020, Yuan's company had also surpassed Cisco Webex in terms of unique users.

Data source: Zoom SEC filings. Note: Fiscal 2021 ended Jan. 31, 2020.

Notably, during fiscal 2021 (ended Jan. 31, 2021), Zoom became the fastest SaaS company to reach $1 billion in ARR, crossing that threshold in the second quarter, roughly nine years after it was founded.

In its S-1 Filing, management put the company's market opportunity at $43 billion by 2022. But during a recent earnings call, Yuan noted the pandemic had expanded Zoom's addressable market, though he didn't provide a specific figure.

Regardless, in the years ahead, the company should continue to benefit from remote work even as the economy reopens. Moreover, the stock is down nearly 50% from its 52-week high, so now looks like a good time to pick up a few shares.