Investors are willing to pay a premium on revenue certainty in an increasingly volatile world.
However, in many types of businesses, revenue is anything but certain as it is affected by all manner of economic conditions such as inflation and interest rates.
Enter the software-as-a-service (SaaS) sector.
SaaS companies operate cloud platforms that sell subscription services to their clients, allowing them to access products and services at any time for their usage.
Subscription revenue is as close as investors can get to enjoying revenue certainty as these contracts are locked in.
This fact is what makes SaaS companies an attractive option for investors looking for growth, as the platform is easily scalable and taking on more customers does not necessarily lead to a sharp increase in expenses.
We profile five fast-growing US SaaS companies that could lift your portfolio higher.
Paycom Software (NYSE: PAYC)
Paycom Software provides human resource and payroll software services to its clients.
The company saw both its revenue and net profit rise consistently over the past few years.
Total revenue went from US$841.4 million in 2020 to US$1.38 billion in 2022.
In particular, recurring revenue (from subscription services) increased from US$825.9 million to US$1.35 billion over the same period.
Net profit nearly doubled from 2020 to 2022, going from US$143.5 million to US$281.4 million.
In addition, Paycom Software also generated healthy positive free cash flow for these three years.
For the first nine months of 2023 (9M 2023), the company continued this momentum with revenue climbing 15.3% year on year to US$1.26 billion.
Net profit jumped 28.6% year on year to US$259 million, and Paycom Software generated a positive free cash flow of US$214.9 million for 9M 2023, up 48.6% year on year.
Shopify (NYSE: SHOP)
Shopify is an e-commerce platform that provides tools and services for entrepreneurs to run their businesses and market to potential customers.
The company saw total revenue rise 21.4% year on year in 2022 as revenue hit US$5.6 billion.
Of note, revenue from subscription solutions rose 10.8% year on year to US$1.5 billion.
For 9M 2023, Shopify has continued to power on with total revenue climbing 27.2% year on year to US$4.9 billion.
For the third quarter, gross merchandise volume (GMV) increased by 22% year on year to US$56.2 billion.
Gross payments volume represented 58% of GMV for the quarter, up from 54% at the same time last year.
The company launched a new initiative – Retail Plan, to help offline merchants build a simple online presence while releasing a new enterprise-grade payments hardware called POS Terminal in the US and Canada.
Snowflake (NYSE: SNOW)
Snowflake offers a data cloud platform for organisations to unite, share and collate data to perform analytics and discover insights.
The company posted steady top-line growth from fiscal 2021 (ending 31 January) to fiscal 2023 (FY2023).
Revenue jumped more than three-fold over this period, going from US$592 million to US$2.1 billion.
Although the company reported both operating and net losses over these three years, the good news is that free cash flow turned positive in FY2022 and has remained so in FY2023.
For the first six months of FY2024 (1H FY2024), Snowflake saw revenue surge 41.1% year on year to US$1.3 billion.
The data cloud provider continued to churn out healthy positive free cash flow of US$352.2 million for 1H FY2024, up 55.7% year on year from US$226.2 million.
Total customers rose to 8,537 from 6,823 a year ago, with customers delivering over US$1 million in product revenue soaring 62% year on year to 402.
Samsara (NYSE: IOT)
Samsara offers a connected operations cloud to allow physical businesses to harness Internet of Things (IoT) data to gain business insights and improve their operations.
Samsara saw revenue more than doubled from US$249.9 million to US$652.5 million from FY2021 to FY2023.
For 1H FY2024, revenue continued its upward climb, rising by 43% year on year to US$423.6 million.
The company also reported a positive free cash flow of US$12.7 million, reversing the free cash outflow of US$102.7 million a year ago.
Annual recurring revenue (ARR) is also growing steadily, ending the second quarter of FY2024 at US$930 million, up 40% year on year.
Customers with more than US$100,000 ARR saw a 53% year-on-year surge to 1,515.
Cloudflare (NYSE: NET)
Cloudflare is a cloud service provider that offers a variety of services to its clients such as making the business more secure, enhancing application performance, and reducing the cost and complexity of managing hardware.
The company boasts more than 30% of the Fortune 1,000 companies as paying customers as of 30 September 2023.
Cloudflare has demonstrated impressive growth over the years with revenue more than doubling from US$431 million in 2020 to US$975.2 million in 2022.
Operating cash flow also turned positive in 2021 and has been growing although free cash flow remained negative from 2020 to 2022.
For 9M 2023, Cloudflare continued to post higher revenue of US$934.3 million, up 33.4% year on year.
The cloud services provider also saw free cash flow turn positive at US$68.7 million, reversing the negative free cash flow of US$73.4 million in the prior year.
The company’s large customers with more than US$100,000 of ARR saw a 42% annual growth rate from 3Q 2021 to 3Q 2023, ending at 2,558 as of 30 September 2023.
Cloudflare believes that its total addressable market will rise to US$204 billion by 2026, giving the business ample opportunities to grow its revenue and free cash flow.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
