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Home Growth Companies 3 Fast-Growing Software-as-a-Service Businesses That Could Outperform the Market

3 Fast-Growing Software-as-a-Service Businesses That Could Outperform the Market

The subscription economy has been growing by leaps and bounds over the last decade.

Just think about some of the services you enjoy and you’ll realise that they are mostly subscription-based.

An example is Netflix (NASDAQ: NFLX), which offers on-demand streaming movies and TV series to its customers.

For a fixed fee, you can binge-watch your favourite shows whenever you feel like it.

Or consider your mobile data subscription.

For a fixed fee, you can use an allotted amount of data for the month to surf the net, play multiplayer online games, or watch music videos on YouTube.

But business-to-consumer (B2C) subscription plans are just the tip of the iceberg.

In the last 10 years, the number of business-to-business (B2B) subscription services has mushroomed.

Known as software-as-a-service (SaaS) companies, these upstarts deliver their services and solutions via cloud-based platforms.

The subscription-based nature of these businesses provides a measure of stability for investors are revenue is already locked in for future years.

Here are three fast-growing SaaS companies that you should include in your watchlist.

Salesforce.com (NYSE: CRM)

Salesforce.com offers a cloud-based customer relationship management (CRM) solution for clients.

Known as Customer 360, Salesforce runs the number one CRM platform that helps an organisation to connect to their customers better.

The software brings together sales, marketing and IT and provides data analytics and insights into each client’s set of customers.

Armed with this knowledge, companies can then make better decisions on marketing campaigns and sales tactics.

For its fiscal 2021 third quarter ended 31 October 2020, Salesforce reported revenue of US$5.4 billion, up 20% year on year.

Remaining performance obligations (RPO), a signal of firm orders for which work has yet to be delivered, also rose 17% year on year to US$30.3 billion.

Salesforce recently hosted its Investor Day where it disclosed that the total addressable market (TAM) for CRM services will hit US$175 billion by the year 2025, growing at an annual rate of 11%.

With trailing 12-month revenue of around US$20.2 billion, Salesforce still has significant room for growth in the next few years.

DocuSign (NASDAQ: DOCU)

Most of us should have experienced the hassle of signing on multiple pages of a legal document.

Not only is the process time-consuming and laborious, but the amount of paper consumed also takes a toll on the environment.

Here’s where DocuSign steps in.

The e-signature specialist helps to alleviate businesses’ pain points by offering secure and encrypted digital signatures for legal documentation.

The company’s Agreement Cloud offers a suite of applications that help organisations to automate the entire agreement process.

It also offers contract lifecycle management and taps on artificial intelligence to analyse and negotiate agreements.

Over 820,000 customers in over 180 countries now use DocuSign’s services.

For its fiscal 2021 third quarter ended 31 October 2020, DocuSign reported a 53% year on year surge in revenue to US$382.9 million.

Of this total, subscription revenue made up nearly 96% at US$366.6 million.

The company estimates that its TAM stands at approximately US$50 billion, providing it with significant room for further growth.

Okta (NASDAQ: OKTA)

This situation may sound familiar: you open up an app that you seldom use and it prompts you to key in your password.

You try one that you usually use but end up getting locked out of the app after five wrong attempts.

Most of us will understand the frustration involved in needing to memorise 30 or more passwords for email, internet banking and other software.

Now imagine if this issue was magnified a hundred or thousand times, and you get an idea of the magnitude of the problems faced by large organisations.

Okta is an identity management specialist that helps companies to solve these pain points.

Its cloud-based Identity Cloud platform securely connects the right personnel to the right software at the right time.

As of 31 October 2020, Okta has a total of 9,400 customers and has deployed more than 6,500 technology integrations.

Its growth continues to impress: total revenue grew 42% year on year to US$217.4 million for the quarter.

Subscription revenue backlog surged by 53% year on year to US$1.6 billion, underscoring the strong demand for Okta’s services.

The company’s dollar-based net retention rate stood at 123% at the end of the quarter, signalling an additional 23% spend by existing customers based on total annual contract value.

Okta’s TAM stands at around US$55 billion, underscoring the vast potential for the business to continue growing over the long-term.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.