A secular trend toward software as a service is driving growth for smaller SaaS players while presenting opportunities for longer-term investors, says Gregory Dunham, an analyst at Credit Suisse Group.
“There is just a general shift that is driving growth for many of these interesting companies out there as they are providing a solution that’s cheap, it’s easy to deploy [and] you get much higher ROI on some of these offerings because it doesn’t require upfront capital investments,” Dunham said.
Dunham points to SuccessFactors (SFSF) as the fastest-growing SaaS company and one of his top-rated stock picks. SFSF developed the Employee Central product, a suite with the potential to become a full human resources information system, and it is releasing five products that could each be a billion-dollar market in Inform, SuccessFactors‘ workforce analytics product.
“They will post probably north of 30% billings growth on an organic basis this year. They generate $0.20 on the dollar in free cash flow. So they generate good cash flow, they are growing the fastest, and they are releasing — they are evolving the product portfolio to really address a very big market opportunity,” Dunham said.
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