SaaS Guide: Why this tech trend still has legs and who’s winning
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Software as a Service — one of the tech buzzphrases of the decade — has been a huge driver of ASX small cap stocks in recent years.
But how have the “SaaS” stocks fared over the past 12 months, as attention shifted back to resources and new hot spots such as blockchain, cannabis and China exports?
“Pretty mixed” is the answer, as our table of 40 SaaS stocks shows.
Scroll down for our table of 40+ ASX-listed SaaS stocks to find out which are the best performers over the past year.
IT analyst Gartner defines Software as a Service aka SaaS as “software that is owned, delivered and managed remotely by one or more providers”.
The provider typically delivers software over the Internet to a client’s staff on a pay-for-use or subscription basis.
Software makers have been moving to this model because of the allure of much-sought-after “recurring revenue” compared to the old model of one-off pricing. Clients like SaaS because it’s flexible and easily scaleable — and support is outsourced.
“When I was starting tech companies in the 90s the model was very different,” Cube Capital advisor Hani Iskander told Stockhead last year.
“If you had a software product you sold it for an initial licence fee. The client company would hand over $50,000 or $500,000 and straight away you had that large chunk of revenue.
“Over the past ten years that game has changed a lot… Now that we have the Software as a Service model, companies essentially rent the software instead of giving an upfront fee.”
SaaS growing faster than expected
SaaS revenue was “far greater in 2016 than expected, reaching $US48.2 billion”, Gartner reported last year. The segment was “also growing faster in 2017 than previously forecast”.
It’s expected to grow to $US100 billion globally by 2020.
Morgan Stanley last month reported SaaS-based applications were “beginning to dominate their respective markets, but a confluence of factors could position these vendors to expand the boundaries of their markets even wider”.
The opportunity was driven by three factors, said Morgan Stanley’s US Head of software equity research, Keith Weiss:
“Expanding markets beyond their current use cases; building a virtuous circle of data and scale; and tilting the scales from best-of-breed specialisation towards integrated suites of products and services.”
SaaS providers who supply a suite of integrated software solutions were best-positioned because “all customers want their data and workflows to be integrated”, Mr Weiss said in a research note.
Even though SaaS has been hyped, the market opportunity was still ahead, he said.
“These [SaaS] companies have a much smaller share of the market than many people believe, alongside a market opportunity much larger than many have imagined.”
Who are the ASX’s best SaaS performers?
Stockhead tracks about 40 stocks that offer exposure to SaaS.
The large-cap pureplay SaaS stocks are well known — Xero (ASX:XRO), WiseTech Global (ASX:WTC) and the soon-to-be delisted Aconex (ASX:ACX) which was recently snapped up by Oracle.
Montgomery Investment founder Roger Montgomery includes 3P Learning (ASX:3PL), Vista Group (ASX:VGL) and Class (ASX:CL1) in this group.
Others incorporate elements of SaaS technology (for example those offering “cloud-related” services).
And still others… well you might draw the conclusion that a few use the phrase somewhat loosely in their company descriptions.
As a broad group, how have the SaaS stocks performed over the past year?
About half of the 40 SaaS stocks tracked by Stockhead are up over the past year — and half are down. Which shows how important it is to look closely at how SaaS stocks align with the opportunities outlined above by Morgan Stanley’s Keith Weiss.
Elmo Software (ASX:ELO), which provides SaaS-based HR and payroll solutions, is a standout. The $325 million company’s shares have tripled from $2 to $5.80 (at March 9) since floating on the ASX in June.
LiveTiles (ASX:LVT), a SaaS-based digital workplace platform, has gained 127 per cent from 19c to 42c over the past year, for a market cap of $208 million.
The large cap SaaS pureplays have performed particularly well over the past year.
WiseTech‘s shares have doubled while Xero has put on 87 per cent and 3P Learning 62 per cent (in the 12 months to March 9).
Aconex, which provided a cloud-based solution for team collaboration in the construction industry, is about to be gobbled up by Oracle. The $1.6 billion company’s shares have doubled over the past year to match Oracle’s offer price of $7.80.
But there are plenty of SaaS small caps that have brought a smile to investor faces over the past year.
BigTinCan (ASX:BTH), which offers SaaS-based sales software, is up 38 per cent to 36c since listing at 26c a year ago.
SaaS business automation platform Simble Solutions (ASX:SIS) is up 23 per cent.
Dubber (ASX:DUB), a SaaS call-recording and analysis platform has gained 16 per cent, while Infomedia (ASX:IFM), which offers an online car parts system has climbed 9 per cent.
Even GetSwift is still up 18 per cent despite a recent fall from grace.
Here is a list of 40+ ASX-listed stocks with exposure to Software as a Service (SaaS):
|Ticker||Name||12-month price change||Price Mar 9, 2018||Price Mar 9, 2017*||Market Cap|
|ELO||ELMO SOFTWARE (*listed Jun 29, 2017)||1.9||5.8||2||325879360|
|BTH||BIGTINCAN HOLDINGS (*listed Mar 24, 2017)||0.384615384615||0.36||0.26||63482436|
|IHR||INTELLIHR HOLDINGS (*listed Jan 23, 2018)||0.0333333333333||0.31||0.3||32204948|
|SIS||SIMBLE SOLUTIONS (*listed Feb 22, 2018)||0.225||0.245||0.2||19781300|
|MPW||MSL SOLUTIONS (*listed May 4, 2017)||-0.2||0.2||0.25||51096036|
|RD1||REGISTRY DIRECT (*listed Nov 1, 2017)||-0.675||0.065||0.2||5386665.5|
|SVT||SERVTECH GLOBAL (*listed Mar 17, 2017)||-0.915||0.017||0.2||1755643.25|