The deadly coronavirus pandemic has significantly accelerated the digitization of the global economy, which has proven a catalyst for the growth of cloud computing companies. This is evident from the Global X Cloud Computing ETF’s (CLOU) 99.4% gain over the past nine months.
The deployment of COVID-19 vaccines has begun, and the global economy is reasonably expected to recover gradually. However, with most companies shifting to a greater online presence, the need for remote access is here to stay and is now almost universal. In fact, the cloud computing industry is expected to grow at a CAGR of 17.5% over the next five years.
Workday, Inc. (WDAY)
Founded in 2005, WDAY is a provider of enterprise cloud applications for finance operations and human resources. The company offers its Workday Financial Management application that provides functions including but not limited to general ledger, accounting, revenue recognition, financial reporting, and analytics. It also provides its Workday Human Capital Management (HCM) application, which facilitates human resources management. More than 60% of the Fortune 50 companies have adopted WDAY’s applications.
The company’s revenue has surged 17.9% year-over-year to $1.11 billion for the third quarter ended October 31, 2020. Subscription services revenue, which accounted for 87.6% of the total revenue, increased 21.3% year-over-year to $968.5 million. EPS increased 62.3% year-over-year to $0.86. The company had more than 190 virtual customers go live in the third quarter.
Analysts expect WDAY’s revenue to increase 14.2% for the current quarter ending January 31, 2021, 18.6% in 2021, and 16% in 2022. The company’s EPS is expected to increase 43.1% in 2021, 7.8% in 2022, and at a rate of 21.4% per annum over the next five years. WDAY’s earnings surprise history looks impressive, with the company missing the consensus estimate in just one of the trailing four quarters.
The company announced on November 12 that it had been named a Leader in the Gartner Magic Quadrant for Cloud HCM Suites for 1,000+ Employee Enterprises. It has been recognized as a Leader for the fifth consecutive year and was positioned the highest for overall Ability to Execute. On October 29, WDAY announced the availability of Workday Accounting Center and machine learning (ML)-driven predictive forecasts for Workday Adaptive Planning, as well as additional functionality across its finance offerings, to drive insights, agility, and efficiency. The stock has gained 49.7% over the past year to close Thursday’s trading session at $248.76.
How does WDAY stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Industry Rank
A for Overall POWR Rating
The stock is also ranked #4 of 98 stocks in the Software – Application industry.
Dropbox, Inc. (DBX)
Based in San Francisco, California, DBX is the world’s first smart workspace. A leading global collaboration platform, it enables users to create, access, organize, share, collaborate and secure content. DBX is primarily an online company that provides online file storage and sharing services. Its Dropbox Smart Sync enables users to access their content on their computers without taking up storage space on their local hard drives.
For the third quarter ended September 30, 2020, DBX’s revenue climbed 13.8% year-over-year to $487.4 million. Its average revenue per paying user increased 4% year-over-year to $128.03. Gross profit increased 18.8% year-over-year to $384.2 million, and non-GAAP net income increased more than 97% year-over-year to $110.2 million, yielding a non-GAAP EPS of $0.26, which increased 100% year-over-year.
Analysts expect DBX’s revenue to increase 11.8% for the current quarter ending December 31, 2020, 14.9% this year, and 10.6% next year. The company’s EPS is expected to increase 76% this year, 12.5% next year, and at a rate of 16.8% per annum over the next five years. DBX has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters.
On December 15, the company announced that it has been positioned in the Leader section of the Globe for Digital Work Hubs, 2021 for the second year in a row by Aragon Research, Inc. DBX unveiled the next iteration of its collaborative workspace, Dropbox Spaces, on November 17, along with several new features that help teams get organized, collaborate, and keep work moving securely, regardless of from where it is derived. Over the past year, the stock has rallied 38.6% and is currently trading 2% below its 52-week high of $25.16.
DBX’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade and Peer Grade. Among the 60 stocks in the Technology – Services industry, it is ranked #1.
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WDAY shares were trading at $242.34 per share on Monday afternoon, down $6.42 (-2.58%). Year-to-date, WDAY has gained 47.36%, versus a 17.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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