Software-as-a-service (SaaS) has taken a big step toward the mainstream during the COVID-19 pandemic. Online delivery of digital services felt like a novelty in 2019, but now it's a standard business tool. If a company isn't using or providing cloud-based subscription services yet, it sure feels like it will get there in a few years.
A brand new study from data management expert Zebra Technologies (ZBRA +1.41%) underscores this unstoppable transformation. Let's look at my favorite tidbit from the Dynamic Markets Demand Warehouse Agility report and how it relates to investing in SaaS stocks.
The data
Zebra commissioned this market analysis from consulting firm Azure Knowledge. In the first two months of 2022, Azure surveyed more than 1,500 professionals and executives across industries that rely on warehouses in some capacity, ranging from manufacturers and retailers to shipping services and transportation networks.
While the study is full of interesting insights, the infographic below immediately caught my attention:
Infographic by Zebra Technologies.
As you can see, nearly all of the 1,500 respondents expect that they will use many types of SaaS tools five years from now. At the same time, roughly one-third of them have already taken that first step. In other words, the warehouse-oriented SaaS market is likely to triple in size over the next five years without breaking a sweat.
The opportunity
The growth opportunity is actually larger than 200%. Tripling the number of businesses relying on SaaS in some capacity is just a baseline. At the same time, each subscription deal is likely to grow in scope and revenue-generating size over time. Companies specializing in SaaS for business-to-business situations should be able to multiply their subscription-based sales fivefold or more by 2027.
That's obviously good news for Zebra Technologies, which supplies both hardware and SaaS-style software for data management, analytics, and machine learning across the shipping and warehouse pipeline. In Zebra's recent first-quarter report, software sales grew 16% year over year. That surge boosted Zebra's profit margins at a time of sharply rising costs in the hardware segment.
NASDAQ: ZBRA
Key Data Points
The industry impact
But the buck doesn't stop there. Going beyond the direct impact on the company that commissioned this study, Zebra's report also makes it clear that other businesses in the logistics, Internet of Things, and data analytics industries are exploring a fast-growing target market.
For instance, IBM (IBM +1.87%) is a big name in cloud-based machine learning and data analytics. Big Blue's software sales rose by 12% in the first quarter, led by a 22% surge in hybrid cloud services. That's another name for IBM's preferred platform on which it delivers machine learning and analytics services, typically in the form of long-term subscription deals. If Zebra's report is on target, IBM stands to benefit from the same long-term trends.
And let's not forget about Amazon.com (AMZN +0.73%). The e-commerce and cloud-computing giant plays on both sides of this equation, providing SaaS tools for other businesses while also taking full advantage of cloud-computing tools in its own warehouse operations. As a result, Amazon's first-quarter retail sales increased by 15% in the first quarter, while the Amazon Web Services division notched a 28% revenue jump.
Image source: Getty Images.
What this means for investors
Based on Zebra's market analysis and the current trends in the SaaS sector, I'm downright excited about the cloud-based software industry's growth prospects in the next few years. While this study focused on warehousing operations, the same imbalance between limited SaaS exposure and near-universal coverage in the long term should also apply to other target markets.
Savvy investors should take advantage of this opportunity by building investment positions in the makers and providers of SaaS tools. Zebra, IBM, and Amazon are a good start to that wealth-building journey.
