Growing digitization and increasing use of SAAS for software solutions by various companies are boosting the software industry. While Vimeo, Inc. (VMEO) could be an ideal buy, Palantir Technologies Inc. (PLTR) might be best kept on hold.
A surge in the volume of enterprise data, rising automation of business processes, and growing digitization are the primary drivers of the software market.
Moreover, the increasing concern about cyber threats has stimulated companies to implement software solutions and configure malware protection, recognition, and mitigation strategies, thus fueling the market’s growth.
Also, Software as a Service is becoming increasingly attractive to companies looking for accessibility and diversity of software solutions. Revenue in the Software as a Service market is expected to show a CAGR of 5.5%, resulting in a market volume of $167.30 billion by 2027.
In addition, the growing market for artificial intelligence and machine learning is boosting the industry. The global Artificial Intelligence market is estimated to accelerate at a CAGR of 36.8%, registering an incremental revenue of $2.75 trillion by 2032.
However, considering the macroeconomic uncertainties, the tech industry will likely continue to grapple with issues around supply chains, workforce, and innovation in the near term.
Stock to Buy:
Vimeo, Inc. (VMEO)
VMEO provides video software solutions worldwide. The company provides video tools through a software-as-a-service model, which enables its users to create, collaborate, and communicate with video on a single platform.
VMEO’s trailing-12-month gross profit margin of 76.60% is 54.5% higher than the 49.59% industry average. Its trailing-12-month asset turnover ratio of 0.71x is 43.4% higher than the 0.49x industry average.
VMEO’s revenue stood at $103.58 million in the first quarter, which ended March 31, 2023. The company’s total operating expenses declined 23.3% year-over-year to $82.72 million. Its adjusted EBITDA came in at $3.20 million, compared to a negative $10.40 million in the previous-year quarter.
Analysts expect VMEO’s revenue for the fiscal second quarter ending June 2023 to be $100.59 million. Additionally, it has topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 28.9% over the past nine months to close the last trading session at $4.42.
VMEO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VMEO also has a B grade for Sentiment and Quality. It is ranked #8 of 25 stocks in the B-rated Software - SAAS industry.
To access additional ratings for VMEO’s Value, Stability, Growth, and Momentum, click here.
Stock to Hold:
Palantir Technologies Inc. (PLTR)
PLTR builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations.
On June 7, 2023, PLTR and Panasonic Energy Co., Ltd., a Panasonic Group Company, a global leader in high-quality lithium-ion batteries, announced a multi-year partnership to deliver an operation “Smart Factory” for the Panasonic Energy of North America facility in Sparks, Nevada.
The agreement expands PLTR’s signature platform, including artificial intelligence and edge capabilities in the manufacturing space.
On June 6, 2023, PLTR announced the launch of Palantir Foundry for manufacturing on Amazon Web Services. This integrated offering allows users to merge industrial data, decisions, and operations to harness manufacturing data through its entire lifecycle.
PLTR’s trailing-12-month gross profit margin of 78.75% is 60% higher than the 49.24% industry average, while its trailing-12-month asset turnover ratio of 0.57x is 6.7% lower than the 0.61x industry average.
PLTR’s revenues increased 17.7% year-over-year to $525.19 million in the fiscal first quarter that ended March 31, 2023. Its adjusted net income attributable to common stockholders increased 140.2% year-over-year to $107.40 million and adjusted EPS increased 150% year-over-year to $0.05. Also, its total operating expense increased 5.6% year-over-year to $413.43 million.
PLTR’s revenue is expected to amount to $530.62 million in the fiscal second quarter ending June 2023. Its EPS is expected to be $0.05 in the same quarter.
The stock has gained 143.8% year-to-date to close the last trading session at $15.65.
The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
PLTR also has a C grade for Momentum. It is ranked #19 in the same industry.
Click here for the additional POWR Ratings for PLTR (Growth, Stability, Sentiment, Value, and Quality).
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VMEO shares were trading at $4.58 per share on Tuesday morning, up $0.16 (+3.62%). Year-to-date, VMEO has gained 33.53%, versus a 14.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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