Back to top

Image: Bigstock

5 SaaS Stocks That Crushed the FAANGs This Year

Read MoreHide Full Article

The year 2020 has been great for FAANG stocks. While returns from Alphabet (GOOGL - Free Report) have been disappointing, Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) , Netflix (NFLX - Free Report) and Facebook (FB - Free Report) have had an impressive run on the bourses.

The group has benefited from strong demand for e-commerce services and increased media consumption as people have been mostly confined to homes due to lockdowns, shelter-in-place guidelines, along with social-distancing measures. Moreover, the work-from-home and online-learning wave has driven demand for cloud computing services.

Moreover, infusion of AI and ML technologies in almost every solution has been driving the performance of FAANG stocks. Moreover, solid adoption of wearables and smart connectivity solutions — including smart speakers — has been a major growth driver.

In addition, the FAANG group has been instrumental in fighting the spread of coronavirus. Contract tracing tools developed by Apple and Google helped in somewhat flattening the curve. Facebook helped people stay in touch amid the pandemic. Voice and video calling more than doubled on Messenger and WhatsApp.

Notably, overall FAANG stocks have returned 61.5% on a year-to-date basis, outperforming the S&P 500’s rally of 16.9%.

Apple’s the Best Performer, Alphabet Worst

Apple is currently the best-performing stock among the FAANGs, thanks to the Services business momentum. Solid adoption of Apple Watch Series 5 has helped the iPhone maker to strengthen presence in the personal health monitor space. In addition, the company is benefiting from solid demand for 5G-supported iPhone 12. It has reportedly asked suppliers to raise production for the first half of 2021. The company’s expanded portfolio that includes streaming service Apple TV+ is also a key catalyst.

Amazon has performed well in 2020, thanks to solid e-commerce demand, retail efforts and strong Prime momentum. The company has been benefiting from strong distribution network and Prime-enabled fast delivery services. Apart from grocery retail, its deepening focus on the fashion business also aided growth. In addition, Amazon’s Amazon Web Services portfolio and services is a key catalyst.

Netflix’s solid content portfolio aided it to successfully navigate through the coronavirus-impacted stock market in 2020, courtesy of heavy investments in the production and distribution of localized, foreign-language content and an expanding international footprint. However, intensifying competition in the streaming market is expected to mar prospects of the streaming giant.

Year-to-Date Performance


 

Meanwhile, despite the lingering issues related to user data and privacy along with the proliferation of fake news, terrorism-related content and political propaganda, Facebook’s user base persistently expanded in the year. However, its ad-sales have also been hurt by weakness in travel and automotive industries in 2020. This is expected to hurt top-line growth, at least in the near term.

Alphabet is currently the worst-performing stock among the FAANGs. The company’s advertising growth slowed down in 2020 due to the pandemic. Also, growing litigation issues and intensifying competition from Facebook in the U.S. digital ad market have been overhangs on share price movement. Nevertheless, Google’s robust mobile search and Alphabet's focus on AI, cloud and home-automation space have been major growth drivers.

SaaS Stocks Outperform FAANG

Although FAANG stocks’ performance has been impressive, there are a few Software as a Service (SaaS) stocks that have outperformed the group on a year-to-date basis. Here we discuss five such stocks.

SaaS Stocks Versus FAANG (Year-to-Date Returns)



Zscaler (ZS - Free Report) stock has soared 328.6% year to date. It is one of the world’s leading providers of cloud-based security solutions. The company is riding on heightening demand for cyber-security solutions owing to a slew of data breaches. Increasing demand for privileged access security on digital transformation and cloud-migration strategies is a key growth driver.

Apart from this, the company’s Edge cloud for policy enforcement, multi-tenancy, proxy for SSL or TLS inspection and zero trust network access are positioned robustly to gain adoption amid the thriving remote work culture.

Furthermore, strong presence across verticals such as banking, insurance, healthcare, public sector, pharmaceuticals, telecommunications services and education is another key catalyst.

This Zacks Rank #2 (Buy) company’s portfolio strength boosts its competitive edge and helps add users. The Zacks Consensus Estimate for fiscal 2021 earnings has been revised 27.6% upward in the past 60 days to 37 cents per share.

The Trade Desk (TTD - Free Report) stock has skyrocketed 221.2% year to date. It is a provider of technology platform for advertising. Through its self-service, cloud-based platform, ad buyers create, manage and optimize data-driven digital advertising campaigns.

It is benefiting from the momentum in programmatic ad buying. Further, the emergence of digital content boosted the usage of the company’s inventory across all forms of ConnectedTV. Moreover, recovering ad demand and spending scenario are expected to drive the top line.

Markedly, digital ad spending surpassed traditional media buying last year. Additionally, citing reports of eMarketer, WNIP revealed that the digital ad market is estimated to reach $225 billion by 2024 in the United States alone. This reflects an increase from nearly $150 billion estimated market value this year. This gives The Trade Desk plenty of room to expand, and marketers need to reach consumers beyond Google and Facebook.

The digital advertising company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for its 2020 earnings has been revised 58.4% upward in the past 60 days to $4.99 per share.

DocuSign (DOCU - Free Report) has soared 209.3% year to date. It is a popular name for authenticating documents over the Internet through electronic signature.

As companies of all sizes have moved their office staff to work-from-home arrangements for safety reasons, workplaces have adopted digital productivity tools to get things done virtually. One product that has become key part of many businesses' remote-work toolbox is DocuSign's time-saving e-signature application. A comprehensive set of cloud-based software tools could double its addressable market beyond the e-signature business.

The stock, having a Zacks Rank of 3 (Hold) at present, leverages blockchain technology to enable customers adapt to smart tech and make paper agreements digital. The Zacks Consensus Estimate for its 2021 earnings has been revised 34.5% upward in the past 60 days to 74 cents per share.

Veeva Systems Inc. (VEEV - Free Report) has soared 98.4% year to date. It provides cloud-based software for the life sciences industry in North America, Europe, the Asia Pacific, the Middle East, Africa, and Latin America.

Its unique solutions include Veeva Vault, Veeva CRM, Veeva Network and Veeva OpenData. The cost effectiveness of cloud-based applications over in-premise applications is attracting life science companies and is a key catalyst. The company continues to expand market share and has multiple international expansions in CRM with existing customers.

This Zacks Rank #3 company’s knowledge about different components of the life sciences industry is helping it to build targeted products. The Zacks Consensus Estimate for its 2021 earnings has been revised 5.6% upward in the past 60 days to $2.83 per share.

Zendesk, Inc. (ZEN - Free Report) has rallied 82% year to date. It is a cloud-focused firm with a software portfolio geared toward sales, support and customer engagement. The company started as a customer support cloud and now with Zendesk Sunshine, it has become a complete customer relationship management platform.

The platform is open and cloud-based, and can be easily integrated into other enterprise software. It provides businesses with omnichannel solutions so that they can meet customers’ needs in the most convenient way. Zendesk has helped connect nearly 900 million customer queries with a solution in the past year.

This Zacks Rank #2 company’s portfolio strength boosts competitive edge and helps add users. The Zacks Consensus Estimate for its fiscal 2021 earnings has been revised 21.7% upward in the past 60 days to 56 cents per share.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>