In this article we discuss the 5 Fastest-Growing Software Companies. If you want to read our detailed analysis of these software companies, go directly to 15 Fastest-Growing Software Companies.
5. Atlassian Corporation Plc (NASDAQ: TEAM)
Revenue(2015): $319.5 million
Revenue(2020): $1.6 billion
Atlassian is a software company that builds platforms, tools, and issue tracking software for organizations. The company is popular for Jira, a tool that allows software teams and developers to manage their platforms, address issues, and evaluate performance.
It also created the Confluence product that simplifies the process of collaboration in various companies. It allows teams to share projects, work together and assign tasks across a range of devices. The company also created HipChat, an online messaging platform that will enable workers to discuss privately and in groups.
It has other business management tools like Stride and Trello that help teams manage projects and maximize their productive capacity. It is based in Australia, and some of its customers include; Twitter, Facebook, NASA, and more.
4. Splunk Inc. (NASDAQ: SPLK)
Revenue(2015): $450.7 million
Revenue(2020): $2.35 billion
Splunk is a software company that produces tools that analyze and monitor machine-generated data from the websites, applications, and devices that make up a company’s IT structure. It creates software that allows companies to index and search files logged in the system.
It uses a Web-style data interface to capture and correlate data in real-time. Founded in 2003, Splunk makes data processing for companies easy and simplified. The machine data collates a time-stamped record of transactions, security threats, user activities, and more. Splunk processes this data in a comprehensive way that monitors and analyzes data.
Blue Hawk Investment Group said in its Q4 letter that Splunk Inc. was the top detractor of their long book portfolio but they continue to maintain their position in the company. Here is what Blue Hawk Investment Group stated:
“One name of note we wanted to highlight is Splunk, the worst performing long in the quarter. A disappointing Q3’20 and high investor expectations led to a precipitous 23% drop in one trading session following the report. We believe the stock is offering a rare opportunity, as uncertainty caused by the company’s business model transition from license to cloud, among other transitory factors, has spooked investors. This is a very high-quality company with mission-critical software, an attractive competitive position with distribution that will be very challenging to dislodge, and the opportunity to move into tangential opportunities via acquisition. In addition, we think the stock is an under-the-radar recovery play with a very undemanding valuation, rare in the software space. Splunk remains a top five position at year-end.”
3. Workday, Inc. (NASDAQ: WDAY)
Revenue(2015): $787.9 million
Revenue(2020): $3.63 billion
Workday is a software company that produces human capital management(HCM), financial management, and enterprise resource management(ERM) applications and programs. Founded in 2005, the company provides a unified toolkit that allows companies to manage the payroll, track the time, and analyze data.
It is a user-friendly software that reduces the manual paperwork requirements of its users. Workday has products that aid the recruitment and monitoring of employees and optimizes the performance of the workforce.
The company has a tool, Workday Big Analytics, that develops analytical templates that address issues and topics related to human resources and finance. Some of its customers include; Amazon, Netflix, Bank of America, and more.
“Workday (“WDAY”) is the Cloud leader in Human Capital Management (HCM) and Financials software. We first met WDAY 7 years ago as a much smaller enterprise but today it’s on the verge of reporting ~US$4bn in revenues. WDAY has had great success in its HCM offering particularly with the world’s largest companies. However its Financials product has seen more muted growth with customers reluctant to shift such a core function to the Cloud, success here tending to be in the mid-market. Financials comprise only 20% of company revenues today but with the pandemic forcing remote work and benefits, and reliability of Cloud applications becoming clear WDAY’s Financials solutions appear ripe for mainstream adoption.
For all WDAY’s success and averaging over 35% p.a. sales growth the share has barely outperformed the S&P500 since early 2014 as its sales multiple declined from 26x to 10x. WDAY now trades on a more reasonable but still elevated FCF multiple of 43x. However on our view of normalised margins this multiple of FCF would be even lower, below 30x. The nature of the accounting for SAAS (Software-as-a-Service) businesses is that most growth investment goes through the income statement in R&D or Sales and Marketing, versus capex for a typical industrial business. So growth investment tends to depress reported earnings. WDAY is investing to grow its top line 20-25% and if they were to slowdown and grow in line with the market (around 10%) we would expect to see a typical 30%+ software margin, up from the 17% reported margin today. WDAY is led by its founders who own 25% of the company – Chairman David Duffield is an industry pioneer previously founding Peoplesoft (eventually acquired by Oracle) while CEO Aneel Bhusri was Vice Chairman of Peoplesoft.”
2. ServiceNow, Inc. (NYSE: NOW)
Revenue(2015): $1 billion
Revenue(2020): $4.5 billion
ServiceNow is a software company that provides technical management support to the IT sectors of various companies. It has a platform for IT Service Management(ITSM) that automates business management. The company creates workflows that ease the data extraction of its customers. A workflow is a sequence of tasks that processes a set of data.
It operates in 5 major areas: IT, Security, Customer Service, HR Service Delivery, and Business Applications. The IT service aids the maximization of IT resources. The Security service researches threats and prioritizes them based on the risk they pose to the user. The other products optimize customer service and improve the IT processes of the company.
1. Salesforce.Com, Inc. (NYSE: CRM)
Revenue(2015): $5.37 billion
Revenue(2020): $17 billion
Salesforce is a SaaS(Software as a service) company that provides Customer Relationship Management(CRM) services and other applications that optimize analytics and marketing automation. Salesforce provides a platform for users and developers to customize and create their software. The company offers a range of Cloud services in Sales, Marketing, Service, Commerce, Analytics, and more.
The Salesforce software can be integrated with several applications. It also has applications that allow developers to test out their software and programs. The company provides a platform that enables the creation and exchange of customized software. The Salesforce software is used by more than 150,000 companies, including Adidas, Toyota, and others.
Polen Capital Management’s Focus Growth Fund, in their Q4 2020 Investor Letter said that their position in Salesforce.com, inc. was one of the bottom contributors for the fund during the fourth quarter of 2020, but they maintain an optimistic view for the company. Here is what Polen Capital Management stated:
“We discussed Salesforce.com in the third quarter, but the former went from our top contributor last quarter to the largest detractor this quarter. The double-digit share price decline in the quarter seemed mostly driven by investor reaction after Salesforce announced it would acquire Slack, a collaboration software company, for approximately $28 billion, a high purchase price. While the purchase price is higher than we expected, we believe Slack and its functionality fit well strategically with Salesforce’s suite of enterprise software offerings. At a high-level, Slack offers the ability to make both Salesforce’s and other third-party applications work better for their respective customers. In addition, Salesforce’s world-class selling organization and already large customer base should be beneficial for Slack’s subscription revenue growth, which has been more customer-referral based up to this point. It is too early to know if this acquisition will prove to be a smart allocation of investor capital. That said, Slack has a unique value proposition and was growing nicely on a standalone basis. We believe the Salesforce-Slack strategic vision is on point; and although the purchase price is high in absolute dollars, it represents less than 15% of Salesforce’s market capitalization.
We maintain an optimistic view of Salesforce’s business, its competitive positioning within enterprise software, and the rationale behind the Slack acquisition. We expect strong, continued earnings and free cash flow growth many years into the future.”