analysts initiate coverage Snowflake

2 SaaS Stocks Growth Investors Can Buy Right Now

Investors can gain exposure to beaten-down stocks such as Snowflake and MongoDB that continue to grow top-line at an enviable rate.

Growth stocks have lost significant momentum in recent trading sessions, as investors are worried about multiple factors that include steep valuations, the possibility of interest rate hikes, supply chain disruptions, and a slower than expected economic recovery.

In all likelihood, growth stocks may continue to move lower if market sentiment turns bearish. 

However, it’s impossible to time the markets, and long-term investors should view every major dip in stock prices as a buying opportunity. Here, we take a look at two SaaS (software-as-a-service) stocks that should be part of your growth portfolio in 2022.

SaaS companies derive a majority of sales from subscriptions, which allows them to generate a stable stream of cash flows across business cycles. Further, these companies are well poised to benefit from increased customer spending due to a combination of factors that can range from high switching costs, and strong retention rates, among others.

Snowflake

Snowflake (NYSE: SNOW) provides an enterprise-facing cloud-based data platform that allows customers to consolidate data and develop meaningful business insights. In fiscal Q3 of 2022 (that ended in October), Snowflake increased product revenue by 110% year over year to $312 million and ended the quarter with an RPO (remaining performance obligations) of $1.8 billion.

Snowflake expects to recognize around 55% of its RPO as revenue in the next 12-months. In addition, its net revenue retention rate rose to 173%, which suggests existing customers increased spending on the Snowflake platform by 73% in the last year.

In Q3, the number of Snowflake customers with more than $1 million in trailing 12-month product revenue rose to 148, up from 116 in the year-ago period. Eight of these customers generate over $10 million in annual sales for the company.

Snowflake continued to expand in international markets, and its product revenue from EMEA and the Asia Pacific outpaced overall top-line growth in Q3. It also launched operations in Israel, South Korea, and the United Arab Emirates while expanding its product portfolio.

Snowflake stock is down 31% from all-time highs and is trading at a discount of 39% to analyst price target estimates.

MongoDB

Another company operating in the data analysis vertical is MongoDB (NASDAQ: MDB) which offers enterprises a cloud-based commercial database server. In Q3 of fiscal 2022 that ended in October, MongoDB increased sales by 50% year over year to $226.9 million. Sales from its flagship product, the MongoDB Atlas, grew 84%, and it now accounts for 58% of top-line, up from 47% in the year-ago period.

MongoDB ended Q3 with a customer base of 31,000, up from 22,600 in the prior-year period. The company attributed its robust customer expansion to Atlas, which ended Q3 with 29,500 customers.

Analysts tracking MongoDB stock expect revenue to rise by 44% year over year to $850 million in fiscal 2022 and by 35% to $1.15 billion in 2023. So, MDB stock is valued at a forward price to 2022 sales multiple of 23.5x, which is steep, despite a 31% pullback in share prices. However, Wall Street expects MongoDB stock to rise by 38% in the next 12-months.

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