SaaS stocks: A good investment?
It’s no surprise that intelligent investors are sending SaaS company stocks soaring. Let’s find out more.
We were thrilled to welcome Anthony Yeung as our guest speaker at the SaaSLeads Academy this week. Anthony is the VP of Growth at Judopay, the industry leader for mobile-centric payments. One of the topics of Anthony’s talk was how SaaS is a booming area for investment right now. In this article, we’re going to look in more depth at how and why investors like SaaS stocks. So, get ready to buy low and sell high!
Ups and downs
Investing in SaaS is similar to investing in any other sector of the economy. There are ups and downs, successes and failures, and significant risks. Don’t invest your own money without doing your research, and never bet more than you can afford.
Since the start of 2021, stocks in fast-growing SaaS companies with a market cap of $2-10 billion have declined by 17%. But, analysts explain this as a COVID-related anomaly and that the fundamentals and outlook remain the same – SaaS stocks are an attractive investment.
Despite the fall in stock prices across the industry, there have still been some notable successes. Stock in Cloudera, the hybrid data cloud platform, has risen 14% since the start of 2021 after agreeing to a $5.3 billion private equity buyout. Smartsheet has performed well as its product, work collaboration software, is in such demand in the post-COVID world. On the more glamourous end of the spectrum, Pop Culture, a Chinese company operating in the entertainment industry, has seen its stock climb by 29% after announcing a new SaaS product.
However, not every SaaS company is faring as well right now. For example, stock in Fastly, an edge cloud platform, has slumped by 55% since the start of the year, due to weak results and the loss of a large customer.
How do you invest in SaaS stocks?
If you want to try for a share of the spoils and invest in SaaS companies, how do you do it? It depends on the company you want to support with your investment.
If the company is large enough, it’s likely to be traded on one of the major global stock exchanges, such as the Nasdaq. Probably the most famous SaaS company in the world, Salesforce, is listed on the New York Stock Exchange. Grabbing stock in these firms is as easy as a few taps on your phone (if you have the money, of course).
Perhaps the most exciting and lucrative way to invest in the SaaS industry is to get in early on a startup and watch your percentage rise in value as the company grows. Unfortunately, this opportunity isn’t open to most people, only VCs and institutional investors. The good news is that if you choose to work at an early stage startup, you may be offered some shares. If you do a great job and stay with the company until they float on a stock exchange, your startup shares could be worth a serious amount.
Why SaaS works for investors
So, what makes SaaS an attractive opportunity for investors? Here are four reasons:
- The SaaS business model is based on recurring payments rather than one-off sales. This means SaaS companies can create predictable revenue (as long as they can hold on to their customers), which investors love to see as it’s likely to lead to a return on their investment
- Because they have to hold on to their customers and win more in order to grow, SaaS companies tend to focus heavily on making their customers happy. Putting your customers at the centre of what you do is good for business, which attracts investors
- There is a lot of competition in the SaaS industry. As a result, the best SaaS companies are quick to shift to changing market demands and are frequently adding new features to delight their customers. Investors like to put their money with companies with an eye on the future
- SaaS companies are extremely scalable, as it’s relatively easy to add new users without seeing an increase in fixed costs. This means that the more customers you attract, the bigger your gross margins grow
SaaS companies that have predictable, recurring revenue, with a focus on the customer and an eye on scale, are likely to provide investors with bigger returns from a smaller investment, compared to companies in other sectors. So, it’s no surprise that investors love SaaS.
As we move into the post-COVID world, with remote or hybrid working becoming more the norm than the exception, and companies creating or upgrading their digital services, the SaaS industry looks to be futureproof. In a volatile financial world, SaaS is a safer bet.
Invest in your future with SaaSLeads
If you’re a SaaS company looking to start up your sales machine and start creating predictable, recurring revenue (the type potential investors love!), you need to talk to SaaSLeads.io.
At SaaSLeads.io, we recruit, develop and deliver SDRs to your organisation, ready to produce excellent results in your sales team.
Our extensive training programme teaches SDRs to generate excitement around the impact your product brings. They learn how to move your prospects through a structured sales process that leads to more won deals. Then, when they get to your company, they’re ready to produce unparalleled results.
Hiring SDRs from SaaSLeads is an investment in your future. Let’s work together to make it pay off.
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