3 SaaS Stocks to Add to Your 2022 Watchlist

Even though data breaches continue to hinder the performances of software-as-a-service (SaaS) companies, the continuation of hybrid working with the resurgence of COVID-19 cases should drive the SaaS industry’s growth. Because several companies have delayed their back-to-office plans, the industry should continue to witness steady demand.

According to a PR Newswire report, the SaaS industry is expected to grow at an 11% CAGR through 2024. Innovative product launches are driving the industry’s growth. And investors’ interest in this sector is evident in the SPDR S&P Software & Services ETF’s (XSW) 9.5% year-to-date returns.

So, we think it may be wise to add quality SaaS stocks Microsoft Corporation (MSFT), Intuit Inc. (INTU), and Dropbox, Inc. (DBX) to one’s 2022 watchlist. 

Click here to check out our Software Industry Report      

Microsoft Corporation (MSFT)

Technology giant MSFT’s broad product portfolio includes personal computers, tablets, gaming and entertainment consoles, and related accessories. In addition, Redmond , Wash.-based company is making several advances in the cloud space with the help of Microsoft Azure.

On December 2,CVS Health (CVS) and MSFT announced a new strategic alliance focused on developing innovative solutions to help consumers improve their health. Roshan Navagamuwa, Chief Information Officer, CVS, said, “Business services at this scale requires a new level of partnership. Our collaboration with Microsoft will accelerate this work and empower our employees to provide quality care that is more personal and affordable.”

MSFT’s product revenue came in at $16.63 billion for its fiscal 2022 first quarter, ended September 30, 2021, up 5.2% year-over-year. Its total revenue increased 22% year-over-year to $45.32 billion. Also, its net income was $20.50 billion, up 47.6% year-over-year.

For its fiscal year 2022, analysts expect MSFT’s revenue to be $196.95 billion, representing a 17.2% year-over-year rise. In addition, the company’s EPS is expected to increase 14.4% year-over-year to $9.21 in the current year. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 53.7% to close yesterday’s trading session at $342.45.

MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

Also, the stock has an A grade for Sentiment and a B grade for Stability and Quality. Within the Software-Application industry, it is ranked #12 of 169 stocks. Click here to see the additional POWR Ratings for Growth, Value, and Momentum for MSFT.

Intuit Inc. (INTU)

INTU provides financial management and compliance products and services for consumers, small businesses, self-employed and  accounting professionals in the United States, Canada, and internationally. The Mountain View, Calif.-based company has four segments: Small Business & Self-Employed; Consumer; Credit Karma; and ProConnect. 

On November 18, 2021, Sasan Goodarzi, INTU’s CEO, said, “We are off to a strong start in the fiscal year 2022, delivering on our strategy of becoming an AI-driven expert platform powering the prosperity of consumers and small businesses. We continue to see strong momentum and proof that our big bets are further positioning us for durable growth in the future, and we're delighted that Mailchimp has joined Intuit."

For its fiscal 2022 first quarter, ended October 31, 2021, INTU’s product revenue came in at $397 million, up 8.2% year-over-year. Its total net revenue increased 51.7% year-over-year to $2.01 billion. And its EPS came in at $0.82, up 9.3% year-over-year.

INTU’s revenue is expected to be $12.27 billion in its fiscal year 2022, representing a 27.4% year-over-year rise. The company’s EPS is expected to increase 20.1% year-over-year to $11.70 in the current year. Over the past year, the stock has gained 71.3% in price to close yesterday’s trading session at $652.77.

It is no surprise that INTU has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Sentiment and Quality and a B grade for Growth.

INTU is ranked #17 in the Software-Application Industry. Click here to see the additional POWR Ratings for INTU (Stability, Value, and Momentum).

Dropbox, Inc. (DBX)

San Francisco-based DBX provides a collaboration platform worldwide. The company’s solutions include Dropbox paper and doc scanners. With more than 700 million registered users across 180 countries, it aims to design a more enlightened way of working.

On November 4, DBX’s co-founder and CEO, Drew Houston, said, “Q3 was another solid quarter with record free cash flow, strong revenue growth, and great progress against our strategic objectives as we focus on delivering more value to our customers and shareholders. We shipped several new product experiences to help our customers with today’s challenges of distributed and remote work, and I’m confident in our future as we work toward our vision of building one organized place for content and all the workflows around it.”

For its fiscal third quarter, ended September 30, 2021, DBX’s revenue increased 12.9% year-over-year to $550.20 million. The company’s non-GAAP net income increased 33.5% year-over-year to $147.10 million. Also, its non-GAAP EPS came in at $0.37, up 42.3% year-over-year.

DBX’s revenue is expected to be $2.15 billion in its fiscal year 2021, representing a 12.4% year-over-year rise. The company’s EPS is expected to increase 60.2% year-over-year to $1.49 in the current year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 3% in price to close yesterday’s trading session at $25.06.

DBX’s strong fundamentals are reflected in its POWR Ratings system. The stock has an overall B rating, which indicates a Buy in our proprietary rating system.

In addition, it has an A grade for Quality and a B grade for Growth. DBX is ranked #11 of 76 stocks in the Technology - Services industry. Click here to see the additional POWR Ratings for DBX (Value, Momentum, Stability, and Sentiment).

Click here to check out our Software Industry Report

MSFT shares rose $0.05 (+0.01%) in premarket trading Tuesday. Year-to-date, MSFT has gained 55.69%, versus a 29.59% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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