Last year sparked excitement across multiple industries, from electric vehicle companies participating in IPOs to NFTs. Given that, there was a lot of hype.
However, this year will be different. Instead, investors will likely focus on fundamentally-proven stocks that are creating immense value through digital ecosystems. The most profitable ecosystems revolve around its users growing and flourishing themselves; creating value to the provider of the service, this is called Software-as-a-Service (SaaS).
Here are a couple of stocks that are bringing SaaS digital ecosystems to life.
Unity Technologies (NYSE: U) is a software development company that provides the tools necessary to build video games and other digital applications. Unity’s impact on various industries is astonishing as 52% of the top 1,000 mobile games and 60% of AR/VR applications were developed on Unity as of 2019. Developers have utilized Unity for over a decade, which has led to tremendous growth across the top-line as it became a recognizable name throughout the industry.
For reference, Unity’s third quarter brought in $286.3 million of revenue, representing a growth of 42.6% year-over-year. Unity is not yet profitable but is on the right track. After all, SaaS is an immensely profitable business by itself.
Investors who want to acquire shares of Unity may have to pay a higher premium as shares trade at a price-to-sales (P/S) ratio of 39.26.
Salesforce (NYSE: CRM) is a cloud-based platform providing solutions to enterprises including insights to scale clients to new heights. These insights include stored data, analytics, and even forecasted opportunities. Each company has a personalized system to manage operations as efficiently as possible.
To date, over 150,000 businesses use the Salesforce platform to manage, operate, and continuously improve workflows. Salesforce is acquiring more clients every quarter, providing more fundamental business value to shareholders along the way.
Despite Salesforce being one of the largest SaaS companies, revenue and earnings continue to grow. In the fourth quarter, Salesforce generated over $6.86 billion in revenue, with earnings behind it at $468 million. Revenues grew by 26.6% year-over-year and have continued along a steady trajectory according to previous quarterly results.
Salesforce’s valuation is more reasonable than Unity’s, with a price-to-sales (P/S) of 10.21. However, in terms of profitability, Salesforce is valued at a price-to-earnings (P/E) ratio of 147.79.
Unity and Salesforce provide exposure to different industries through a similar SaaS business model. Each stock has come down significantly from all-time high prices, which may be beneficial to investors looking for an opportunity.
Overall, the potential value creation for shareholders is abundant for both companies over the long term.