In his renowned book, ‘One Up on Wall Street’, Fidelity fund manager Peter Lynch discusses the exciting prospects of boring companies. Those companies offering dull products and services often have both strong financials and the luxury of bypassing unwanted media attention. We’re big fans of them here at MyWallSt too: 3 Dull Stocks With Exciting Potential.
Amongst the most boring services out there is human resource management. But although HR management sounds dull at first, there is a lot of potential in this space, particularly as cloud computing has developed over the past few years and HR management has become much more convenient for employers.
Here are 2 companies that have used cloud computing to develop HR management infrastructure.
Paycom (NYSE: PAYC) was founded in 1998 as the first online payroll provider. Since then, the company has expanded to even more exciting territory – from human resource management to benefits administration. It is also one of our 5 favorite SaaS companies.
Paycom now stands amongst the top 5 of Fortune Magazine’s 100 fastest-growing publicly traded companies based on their revenue growth, EPS, and stock returns. In 2018, revenue grew 31% to $566 million while in the same period, Paycom’s clients grew 14% and gross margins increased to 84%. This growth has continued into the most recent quarter, with Q2 2019 revenue up 31% YoY.
By focusing on small to mid-sized companies, Paycom has carved out a unique position in this space. Paycom now works with over 23,500 clients whose companies hire between 50 to 5,000 employees. Tackling this segment of the market has worked out well for Paycom, reaching a 92% retention rate in 2018, up 1% from the previous 6 years.
Paycom’s future is in technology. Paycom’s $46 million R&D budget has enabled them to create sophisticated applications which give them an edge over competitors. For example, Paycom recently launched a new machine-learning application which gives employers insight into which employees are at risk of leaving the organization. This kind of data is a ‘win-win’ for both employer and employee as the company can make appealing offers to those high performers at risk of leaving.
Paycom truly is a company that values employees. Beyond their employee self-service application, which allows employees to seek benefits and request time off, Paycom is regarded as one of Glassdoor’s best places to work. Paycom’s repurchasing of $1.1 million worth of shares in 2018, emphasizes their belief in their business and their people-first approach.
Workday (NASDAQ: WDAY) is another SaaS company offering human resource solutions to clients. Workday’s cloud-based software serves a similar purpose to Paycom’s, but there is a key difference — the scale of the clients. Unlike Paycom, Workday focuses on large scale business clients – 50% of Fortune 50 companies and 40% of Fortune 500 companies now use Workday’s software. This core difference allows both companies to thrive independently.
Although Workday still faces threats from companies such as SAP and Oracle, who are also competing in this space, Workday believes that its adaptive technology platform gives them the edge. In Q1 2019, Workday launched 500 new features, using machine-learning to give clients a deeper insight and manage resources more efficiently. These technological advancements will prove to be very important for the success of Workday as they battle against the competition.
Employers are definitely seeing the advantages of using Workday. In 2018, Workday reached 2,100 customers and revenue grew 36% to $2.1 billion. This growth was led by their recurring subscription-based revenue which accounts for 83% of total revenue, up 39% from 2017.
Workday also consistently ranks highly amongst the best companies to work for, ranking #1 on the San Francisco Business Times ‘Best Places to Work in the Bay Area’ list and #1 on the UK’s Best Large Workplaces list, showing that they actually value employees and practice what they preach across the world. See who beat out Workday in our 3 companies that highlight the importance of good company culture.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Paycom and Workday. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Jamie is a contributing writer for MyWallSt.