The cloud has made it easier for consumers and businesses to adopt digital products and services, giving rise to the software-as-a-service business model. New and innovative companies have risen to change the way businesses interact with customers, how we sell goods and services, and how we communicate with others.
These three SaaS stocks have become strong leaders with their cloud-based software and continue to have long-term growth potential because of the vast size of the markets they compete in.
Reinventing customer relationships
Salesforce.com (CRM 2.43%) was one of the first prominent SaaS businesses, building its customer relationship management software at the end of the millennium in 1999. Today, Salesforce is a leading CRM company and still growing; it has built an ecosystem around the business-to-customer relationship, including software services for customer management, sales, service, and marketing.
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In late July, the company completed its $27.7 billion cash and stock acquisition of Slack, a communications platform that enables direct messaging, chat, private rooms, and more. Slack's features integrated with Salesforce could potentially eliminate the need for traditional communications like email. It could give Salesforce's clients the ability to open direct communication channels with their customers within their CRM platform.
Management is guiding for revenue in fiscal 2022 (the calendar year 2021) of $26.3 billion, a 24% year-over-year increase, showing impressive growth despite the large size of Salesforce already. Slack's integration over time could further fuel Salesforce's long-term growth.
E-commerce for all
Shopify (SHOP 1.37%) is an e-commerce platform that provides all of the software infrastructure for people to open their own online stores. Whereas e-commerce initially began with Amazon owning the space, Shopify has given entrepreneurs, small businesses, and even large brands the ability to participate and compete in digital retail.
More than 1.7 million merchants now power their e-commerce businesses with Shopify, which gives it a share of roughly 8.6% of the U.S. retail e-commerce market, second to Amazon's 39%.
The company is expected to hit $4.6 billion in revenue for the full 2021 year, a 58% increase over 2020, which was already a high bar to clear because of pandemic tailwinds. Shopify could continue to enjoy strong growth as a go-to e-commerce platform; global online retail sales could grow 13.5% per year through 2030, and Shopify just began international expansion a few years ago, so there could still be a lot of growth in the years ahead.
Communicating beyond COVID
Zoom Video Communications (ZM +0.78%) is a communications technology company. "Zoom" became a verb during the pandemic when lockdowns forced businesses, schools, and people to lean on video calls to interact with one another.
The company generated $146 million in revenue in its fiscal year 2020 second quarter (the calendar year 2019, before COVID), and just two years later has grown sixfold to $1.02 billion in its fiscal 2022 second quarter. The pandemic helped Zoom grow, but it doesn't seem like a "COVID stock" by any means; the company has been rapidly growing its market share in videoconferencing since 2016.
Zoom is expanding to integrate more deeply into how businesses communicate. It has agreed to acquire cloud-based call-center software company Five9 in an acquisition worth $14.7 billion in stock. The addition of Five9 will enhance Zoom's communications offerings to businesses, which have already expanded beyond video with Zoom Phone, an all-in-one app for video, audio, and chat communications. Five9 is expected to do $586 million in revenue this year, a 35% year-over-year increase, which will contribute to Zoom's growth.
Get SaaS-y with your stock portfolio
There are a lot of up-and-coming tech companies with SaaS business models. But sometimes there is still plenty of opportunity for proven winners to continue creating great returns. Salesforce, Shopify, and Zoom have become leaders at what they do, growing rapidly under their software-centric business models.
The large addressable markets of business relations, e-commerce, and communications could still offer investors strong returns as long as they are patient enough to let these companies continue to grow over the years ahead.
