The initial public offering (IPO) market over the past two years has seen numerous high-growth tech companies become available for public investment. Demand has driven some runaway valuations and may have kept investors on the sidelines. But recent pullbacks in cloud stocks may be providing an opportunity for those with a long-term mindset.
If you’re looking for some newly public tech companies to add to your watch list…
A trio of fast-growing software services
First, here are some quick stats on all three companies.
|Company||IPO Date||Trailing-12-Month Revenue||Most-Recent-Quarter Revenue Growth||Price-to-Sales Ratio||Dollar-based retention rate|
|Slack||June 20, 2019*||$507 million||58%||22||136%|
|Zscaler||March 16, 2018||$302 million||53%||18||118%|
|Zoom||April 18, 2019||$463 million||96%||41||130%|
Slack is the youngest as a public company and boasts the highest trailing-12-month revenue. Zoom has the highest price-to-sales ratio, which points to it being the most “expensive,” but it also carries the most impressive revenue growth. Zscaler seems the best value, but also has the lowest most recent quarterly growth number. All three have impressive dollar-based retention rates.
Let’s dive into why each should be on your watch list.
1. Slack: The communication upstart takes on an industry behemoth
Slack Technologies has come a long way since the Searchable Log of All Conversation and Knowledge (or Slack for short) was created as an internal tool to help game developers collaborate better. Today, over 100,000 companies pay to use Slack’s software, and 12 million daily active users spend about 90 minutes a day using it to collaborate with colleagues.
It’s gaining momentum with over 600,000 developers who’ve built over 500,000 applications that integrate with the platform. These stats fuel a projected top-line growth of over 50% for the full year. But the stock is being dragged down due to fears of competition from Microsoft‘s Teams application that’s bundled with Office 365.
The CEO isn’t worried about big Mr. Softy and notes that 70% of its top 50 customers use Slack to integrate with Office 365. Grabbing a niche market from a deep-pocketed well-established giant is risky, but some believe this stock could be a winner for long-term focused shareholders. It may be worth it for you to get to know this company a little better.
2. Zscaler: Security for the new cloud landscape
Securing your business network is getting harder than ever. Employees have expectations of getting access to the network from any device and from anywhere. Applications are moving outside of a company’s on-premise data centers into the cloud, and even equipment is now becoming “smart” and connecting wirelessly to the internet.
The days of putting up firewalls around your data center are no longer sufficient. Enter Zscaler, which was born as a cloud-based security service and isn’t dependent on physical constraints to protect your data.
Zscaler converts what was once a number of hardware appliances in the data center and replicates the functions in the company’s software cloud. As a customer converts over to security in the cloud, it can simplify its network architecture and scale without having to add hardware.
This model has been hugely successful and has driven grown at a 50%-plus annual growth rate for the last three years. The market has punished the stock recently because of its lower-than-expected 30% to 34% revenue growth projection for the upcoming fiscal year.
Management pointed to longer sales cycles with larger companies as being the primary reason for weaker projection. But landing larger customers bodes well for the long term for this cloud-based security service and is a reason to add this beaten-down software-as-a-service (SaaS) play to your watch list…
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