ServiceNow, Atlassian, Instructure, VMware are Macquarie’s top enterprise software stocks

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ServiceNow (NOW), Atlassian (NASDAQ: TEAM), Structure (NYSE: INST) and VMware (NYSE: VMW) are investment firm Macquarie’s top picks in the enterprise software space, with the company noting that they are “well positioned” even if there is an economic downturn.

Analysts Frederick Havemeyer and Garrett Hinds note that enterprise software companies are largely well positioned if the economy were to get out of hand, but those considered “best in class” are likely to give shareholders a boost. generation of “solid” cash flow and a loyal customer base. basics.

“While we would likely see high churn, especially from SaaS companies with a higher proportion of small and medium-sized businesses (as we saw early in the COVID-19 pandemic), we believe that with strong balance sheets, a focus on profitable growth and disciplined execution, enterprise software vendors can weather the storm,” the analysts wrote.

Regarding ServiceNow (NOW), analysts believe that the company’s consistent renewal rates, which vary between 97% and 99%, “underline its strategic positioning” among other companies and can help the company re-accelerate the subscription revenue growth of 28.5% per year. -over one year, compared to 28% in 2021.

ServiceNow (NOW) also has $4 billion in cash on its balance sheet and with forecasts targeting a non-GAAP free cash flow margin of 31% in 2022, analysts believe it “offers a resilient business model.” “.

Atlassian (TEAM) is likely to benefit as it has a “low-touch, self-service sales model” that allows the company to spend between 14% and 17% of its total revenue on sales and marketing, while recording more than 50% year-over-year growth in subscription revenue.

The company has “relatively high” exposure to small and medium-sized businesses among its 235,000 customers, but the company has performed well since the start of the pandemic and its ongoing subscription transition has allowed it to have a “buffer of growth”. analysts add.

Instructure (INST), which helps the education market, is the market share leader in learning management systems, which analysts say represents “a stable, enterprise-like customer base.”

The company has been emphasizing the K-12 market and with multi-year tailwinds from fiscal stimulus, available through 2023, Instructure Software (INST) is considered a “mission-

critical” and its emerging platform strategy provides additional opportunities for upsell clients.

VMware (VMW), which is being acquired by Broadcom (AVGO) for $61 billion in cash and stock, is expected to see tailwinds as it shifts to a software-as-a-service model, compared to a perpetual license, as well as its “loyal clientele”.

The stock is trading at a discount of around 22% from the offer price of $142.50 per share and analysts do not expect any reduction in the offer, as VMware (VMW) has ” many opportunities” to continue as an independent company while continuing to generate returns for shareholders.

Analysts also noted that VMware (VMW) shares are expected to perform better in the second half as the supply chain normalizes and the acquisition may close sooner than market expects, between three and six months. compared to the nine- to 12-month forecast. .

Service Now (NYSE: NOW) was recently recommended as a long pick by SurgoCap’s Mala Gaonkar at the 2022 Sohn Investment Conference.