The software industry has suffered the brunt of the Fed’s relentless interest rate hikes to fight inflation since last year. Yet, the industry’s long-term prospects appear promising, with growing demand for enterprise software and digitization.
Enterprise software is becoming increasingly popular due to the increasing usage of cloud-based services in small and medium-sized businesses. Companies are adopting cloud-based enterprise software to increase productivity and reduce upfront costs. The enterprise software market is expected to grow at a CAGR of 8.6% until 2030.
Moreover, according to Gartner, software spending will rise 9.3% in 2023.
Investors’ interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF (IGV) 12.7% returns over the past three months.
Let’s discuss the fundamentals of ORCL, EGAN, and ADBE to understand why they are well-positioned to generate solid returns in the long run.
Oracle Corporation (ORCL)
ORCL provides products and services that address all aspects of corporate IT environments, including applications, platforms, and infrastructure worldwide. The company operates through cloud services and license support; cloud license; on-premises license; hardware; and services segments.
On March 21, 2023, ORCL announced that it had extended its partnership with NVIDIA Corporation (NVDA) to enable the deployment of strategic AI applications on the new Oracle Cloud Infrastructure (OCI) Supercluster™.
“OCI is the first platform to offer an AI supercomputer at scale to thousands of customers across every industry. This is a critical capability as more and more organizations require computing resources for their unique AI use cases. To support this demand, we continue to expand our work with NVIDIA,” said Clay Magouyrk, executive vice president of Oracle Cloud Infrastructure.
On February 13, 2023, ORCL and Uber Technologies, Inc. (UBER) announced a seven-year strategic cloud collaboration to boost UBER’s innovation in bringing new products to market and increasing profitability. This strategic alliance highlights Oracle Cloud Infrastructure’s strong market momentum and acceleration in comparison to other hyperscalers.
ORCL’s trailing-12-month gross profit and EBITDA margins of 74.50% and 38.79% are 48% and 293.2% higher than the industry averages of 50.35% and 9.87%, respectively.
ORCL’s net revenue increased 17.9% year-over-year to $12.40 billion for the third quarter that ended February 28, 2023. Its adjusted operating income came in at $5.19 billion, up 7.7% year-over-year. The company’s non-GAAP net income and non-GAAP EPS came in at $3.38 billion and $1.22, up 9% and 8% year-over-year, respectively.
Analysts expect ORCL’s revenue to increase 17.4% year-over-year to $49.84 billion in 2023. Its EPS is estimated to increase 2.9% year-over-year to $5.04 in 2023. It surpassed EPS estimates in three of four trailing quarters. Over the past six months, the stock has gained 33.1% to close the last trading session at $87.90.
ORCL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ORCL has a B grade for Stability and Sentiment. In the Software – Application industry, it is ranked #32 out of 135 stocks. Click here for the additional POWR Ratings for Value, Momentum, Growth, and Quality for ORCL.
eGain Corporation (EGAN)
EGAN develops, licenses, implements, and supports customer service infrastructure software solutions in North America, Europe, the Middle East, Africa, and the Asia Pacific. The Company operates in the development, license, implementation, and customer service infrastructure software solutions.
On February 15, 2023, EGAN announced the integration of its eGain Knowledge Hub solution with Microsoft TeamsTM. The certified connector makes use of eGain’s BYO (Bring Your Own) architecture to provide no-code integration and simple deployment.
Ashu Roy, eGain CEO, said, “One of the biggest elephants in the room that saps performance is the time employees spend looking for knowledge. eGain Knowledge Hub will help seal this productivity drain for Enterprise Teams users.”
EGAN’s trailing-12-month gross profit and levered FCF margins of 73.23% and 38.79% are 13.28% and 118.5% higher than the industry averages of 50.35% and 6.08%, respectively.
In the second quarter that ended December 31, 2022, EGAN’s net revenue increased 10.9% year-over-year to $25.60 million. Also, its gross profit came in at $18.85 million, which increased 10% year-over-year. Its operating income came in at $18.64 million, up 5.7% year-over-year.
EGAN’s revenue is expected to increase 12.8% year-over-year to $111.29 million in 2024. Its EPS is expected to grow 117.6% year-over-year to $0.37 in 2024. It surpassed EPS estimates in three of four trailing quarters. EGAN’s have lost marginally intraday to close the last trading session at $7.24.
EGAN robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It has an A grade for Sentiment and a B grade for Value, Quality, and Stability.
It is ranked first in the same industry. In addition to the POWR Ratings, we have rated EGAN’s for Growth and Momentum here.
Adobe Inc. (ADBE)
ADBE operates as a diversified software company worldwide. It operates through three segments: Digital Media, Digital Experience, and Publishing and Advertising.
On March 22, 2023, ADBE and Prada Group announced an expanded partnership to offer real-time personalization and revenue growth, boosting the global luxury group’s consumer experiences across all digital and physical retail platforms. This ensures that they can engage and connect with each customer.
Also, on the same day, ADBE announced that General Motors (GM) has chosen Adobe Experience Cloud to enable one-to-one personalized interactions at scale to millions of its consumers.
ADBE’s trailing-12-month gross profit and EBITDA margins of 87.66% and 37.34% are 74.1% and 278.5% higher than the industry averages of 50.35% and 9.87%, respectively.
ADBE’s total revenue increased 9.2% year-over-year to $4.66 billion for the first quarter ended March 3, 2023. Its operating income increased 9% year-over-year to $1.59 billion. Additionally, its EPS came in at $2.71, which increased marginally year-over-year.
Street expects ADBE’s revenue to increase 9.6% year-over-year to $19.30 billion in 2023. Its EPS is estimated to increase 13.1% year-over-year to $15.50 in 2023. It surpassed EPS estimates in all four trailing quarters. The stock has gained 26% over the past six months to close the last trading session at $361.71.
It is no surprise that ADBE has an overall rating of B, which translates to a Buy in our POWR Ratings system.
It is ranked #21 in the same industry. It has an A grade for Quality and a B for Sentiment. To get the additional ADBE ratings for Value, Growth, Momentum, and Stability, click here.
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ORCL shares were trading at $88.84 per share on Thursday morning, up $0.94 (+1.07%). Year-to-date, ORCL has gained 9.09%, versus a 3.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.Get in on These Strong Software Stocks appeared first on StockNews.com