Today we will explore the top 2 long-term cloud stocks that offer promising investment opportunities.
A stock can be interesting if its revenue is growing incredibly quickly. But if that expansion isn’t enduring or profitable, then reality will sooner or later rear its ugly head. The top growth stocks have the ability to sustain high revenue and profit growth for many years. Long-term investors want to see that.
In the realm of cloud stocks, Paycom Software (PAYC 2.96%) and Atlassian (TEAM 6.02%) have the qualities to deliver consistent growth for many years to come. An focused focus on effectively gaining customers unites them, something that many subscription software firms overlook. Atlassian and Paycom should be a good fit for you if your time frame is measured in years or decades.
After 20 years in development, Atlassian has become an instant success. Jira, the centrepiece of the company’s portfolio of communication, productivity, and project management solutions, has been slowly expanding in popularity for years. Jira has emerged as the de facto industry standard for bug- and issue-tracking software, despite the fact that there are many alternatives.
Atlassian has gone the long path to attain this point. Since the release of Jira’s initial version in 2002, the company’s aim has been to ensure that the product sells itself. In order to enhance its current products and create new ones, Atlassian spends little on sales and marketing and invests heavily in R&D. Atlassian spent just 25% of revenue during the final six months of calendar year 2022 on sales and marketing while spending 63% on research and development. Many subscription software providers have the percentages reversed.
The remarkable thing about Atlassian is that it produces significant growth while maintaining a minimal sales force. In the most recent quarter, revenue increased 29% year over year, outpacing many of its competitors who spend far more on generating new business. Businesses will certainly experience a slowdown in growth this year as a result of the challenging economic climate, but Atlassian’s growth rate should resume once things have stabilised.
On a GAAP perspective, Atlassian is not profitable, yet it generates a lot of free cash flow. As the business navigates this challenging time, a recent wave of layoffs, which will lower Atlassian’s head count by around 5%, will help keep costs in check. Atlassian has the potential to develop into a highly lucrative software company over time given its sales effectiveness.
Although the price of Atlassian stock is not particularly low, it has dropped considerably from its peak. Atlassian appears to be a fantastic choice for investors that have long time horizons.
Paycom is comparable to Atlassian in that it has found out how to sell its products effectively. Paycom is a cloud-based provider of HR and payroll software. In the instance of Paycom, this efficiency results from recognising sales as a core skill and devoting the necessary time and effort to creating highly successful sales teams.
Currently, Paycom has 55 local sales teams spread over 28 different cities. It usually takes a sales team 24 months to mature, so growing a team takes time and care. High client happiness and low customer acquisition expenses are the reward, though. In 2022, the corporation retained 93% of annual revenue and spent only 25% on sales and marketing. Spending fueled a 30% increase in revenue.
Paycom maintains low overhead expenditures as well, resulting in remarkable profitability. On $1.375 billion in revenue, the corporation generated GAAP net income of $281 million the previous year. Paycom anticipates revenue growth of roughly 24% in 2023, which is not bad given the current state of the economy. Paycom’s products’ stickiness and mission-critical status undoubtedly contribute to this ongoing growth.
Although Paycom mostly targets smaller firms, it is now increasingly focusing on larger ones. Paycom sees a significant opportunity to cross-sell more products and improve income per customer. The typical Paycom customer employs between 50 and 10,000 employees. Additionally, there is still lots of room to gain more clients. Paycom only has one sales team in many places that might sustain additional sales teams, and it has no sales presence in 10 of the top 50 metropolitan statistical areas in the United States.
Paycom is not a business with rapid growth. Instead, it provides controlled, profitable growth that is supported by a tried-and-true sales approach. There is little reason why the company can’t grow at a double-digit rate on average for many years to come, even though its performance will fluctuate depending on the health of the labour market.