Are SaaS Stocks Still A Good Investment?

Are SaaS Stocks Still A Good Investment?

We are long-term investors here at MyWallSt and recommend companies that we believe will have consistent growth for years to come. Updates are an opportunity for us to reaffirm our stance on a company while keeping you up to date on its developments. By renewing our comments with the latest information, we ensure that investors have confidence in our selections, regardless of their start date.

2020 was the year of SaaS. If we are to get a bit more specific, it was really the year of enterprise SaaS. I’m aware that I’m rehashing a point we have made time and time again, so I’ll try to keep it short and sweet. The pandemic changed the way we will work forever. Workplaces across the globe were forced to adapt and if you were in the business of cloud-based software solutions, business was good and getting better. 

You see, these types of companies facilitate working from anywhere, which helps when people are forced to work from anywhere. BlackLine’s accounting software, if not as sexy as some of its compatriots like Slack or Zoom, still found itself in this cohort of ‘Work-from-home’ stocks that the market lauded as must-haves for the best part of a year. 

2021 has not been the year of enterprise SaaS. While investors still love the scalable and high-margin business model, with economies reopening and tough comparables on the horizon, the darlings of 2020 are not as in-demand. Nowhere is this change in sentiment more evident than with Zoom. The business has performed exceptionally in 2021 so far, however, the stock is down over 50% from its all-time highs. Now, if you had asked a Zoom investor 24-months ago if they would be happy with 300% returns over the next two years, they would have bitten your arm off. They might not be so happy to see your one-armed self 12-months later, telling them their holdings are about to be cut in half.

BlackLine has mirrored this cadence at a much smaller scale. From its pandemic lows to its all-time high set in February 2021, the stock grew 220%. Since then it’s fallen around 20%. Thankfully, the company maintained its growth rate of around 20% for the past four quarters, with its most recent quarter actually coming in the highest at 23%. When we see a stock we own underperform the market, it’s easy to assume the worst. However, this indicates that there are no underlying performance issues that have led to the stock remaining stagnant for 2021, but rather it just got caught up in a wider sea change. 

There is a significant market opportunity for BlackLine in ousting the dated and complex systems already in place at many companies, and it believes it has only unlocked 1.5% of its total addressable market. As digital transformation turns from an objective into a reality, software like this will evolve from a nice-to-have to a must-have. Anything that makes the finance department’s lives easier is always an easy sell. Remember, they’re the ones approving the expenditure!

We believe that BlackLine will continue to maintain its competitive advantage over the coming years due to high switching costs, and a best-in-class product — that is according to G2 and Gartner, among others. The company boasts a high caliber of customer, with names like Microsoft, Salesforce, and Spotify on its books. It has also shown consistent levels of new customer additions since 2016.

Lastly, we can’t talk about BlackLine without mentioning the elephant in the room. The narrative around the company for so long has revolved around its founding CEO and Silicon Valley legend Therese Tucker. One of a select few female founder-CEOs, her decision to step down from the top spot after 20 years was significant. A future without Tucker running the show is an unknown entity for the business. That being said, she will remain heavily involved in the guidance of the company in her role as executive chair. Her replacement, Marc Huffman, has vast experience growing revenue from $3 million to $1 billion at Netsuite in his role as president of worldwide sales and distribution. His expertise in geographical expansion will be a key factor in BlackLine’s future international growth strategy.


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