As the pandemic has accelerated digital transformation, businesses are increasingly adopting software services. Moreover, the remote working culture has increased dependence on software significantly. Since the software market is expected to keep growing, Wall Street analysts expect prominent players in this space, StoneCo (STNE), Zedge (ZDGE), and Verb Technology (VERB), to witness significant upside in the coming months.
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Almost all industries worldwide, from manufacturing to transportation and healthcare, are now dependent on data insights, data storage, and various other cloud-based services offered by software companies. Even advanced sleek hardware gadgets depend on software functions as well. Consequently, businesses are willing to spend billions of dollars on upgrading and improving their software. According to a Gartner report, worldwide public cloud end-user spending is expected to grow 23% in 2021.
The global software market is expected to reach $823.71 billion by 2026, registering a CAGR of 7.2%. Investors’ confidence in the software industry is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 14.7% return over the past six months.
Hence, Wall Street analysts are optimistic about the upside potential of several quality software stocks. They expect StoneCo Ltd. (STNE), Zedge, Inc. (ZDGE), and Verb Technology Company, Inc. (VERB) to gain more than 75% in the coming months.
StoneCo Ltd. (STNE)
Headquartered in George Town, Cayman Islands, STNE is a provider of financial technology solutions. The company provides an end-to-end, cloud-based technology platform to conduct electronic commerce across Brazil’s in-store, online, and mobile channels. It also developed its distribution solution to reach and serve its clients by developing local operations support staff, Stone Hubs.
STNE’s net revenue from transaction activities for the second quarter that ended June 30, 2021, increased 57.9% year-over-year to R$359.2 million ($65.27 million). The company’s profit before income tax grew 264.6% from the year-ago value to R$582.6 million ($105.86 million). Its net income rose 325.6% from the prior-year quarter to R$526 million ($95.57 million).
Analysts expect STNE’s revenue for the fiscal year 2022 to be $1.47 billion, representing an 81% year-over-year growth. The company’s EPS is expected to increase 266.7% next year.
All the seven Wall Street analysts that have provided ratings for the stock rated it Buy. Closing yesterday’s trading session at $34.26, the average analyst price target of $79.29 represents a 131.4% potential gain.
Zedge, Inc. (ZDGE)
Incorporated in 2008, ZDGE is a digital publishing platform that offers Zedge, a consumer-facing mobile personalization app. The company also provides a wide range of personalized wallpapers, video wallpapers, ringtones, notification sounds on Android and wallpapers, video wallpapers and ringtones on iOS.
In August, ZDGE acquired the leading authority on emojis, Emojipedia. ZDGE should diversify its portfolio, expand its value propositions and make its app more attractive to the users with the help of Emojipedia’s emoji visualization symbols. Also, ZDGE’s users can enrich their quality content through this acquisition.
During the fiscal third quarter that ended April 30, 2021, ZDGE’s revenue increased 152.6% year-over-year to $5.25 million. The company’s income from operations came in at $1.98 million, compared to a loss from operations of $127 thousand in the prior-year quarter. Its net income came in at $1.93 million for the quarter, compared to a net loss of $325 thousand in the fiscal third quarter of 2020. Also, the company’s EPS amounted to $0.13, compared to a loss per share of $0.03 in the prior-year quarter.
ZDGE’s revenue is expected to increase 100% year-over-year to $18.94 million in fiscal 2021. The company has an impressive earnings history; it beat the consensus EPS estimates in each of the trailing four quarters. Its EPS is estimated to grow 1,000% in the current year. Over the past nine months, the stock soared 117.7%, and over the past year, it soared 718.7%.
The only Wall Street analyst providing a rating for the stock rated it Buy. The price target of $27 represents a 107.7% potential gain from the last closing price of $13.
Verb Technology Company, Inc. (VERB)
VERB is a Software-as-a-Service (SaaS) applications platform development company. It offers interactive and video-based sales enablement business software products. The company’s application includes verbCRM, verbTEAMS, verbLEARN, and verbLIVE. Its products also offer CRM-based applications, in-video e-commerce-based tools for sales professionals, video-based education, and live stream e-commerce applications.
This month, VERB entered into an agreement with David Meltzer Enterprises, where David Meltzer Enterprises would serve as an executive producer at the shoppable entertainment extension of VERB’s livestream shopping destination, verbTV. The company believes that this agreement should help create long-term value for VERB.
VERB’s SaaS recurring revenue increased 25.7% year-over-year to $1.6 million for the second quarter that ended June 30, 2021. The company’s cash grew 255.3% from $1.82 million as of December 31, 2020, to $6.45 million as of June 30, 2021. Its total revenue came in at $2.39 million, and gross margin amounted to $1.27 million during this period.
For the fiscal year 2022, VERB’s revenue is estimated to be $21.85 million, representing an 80.9% year-over-year growth. Analysts expect VERB’s EPS to increase 62.1% next quarter and 28.8% in the current year. Its stock surged 73.6% over the past six months and 113.3% over the past year.
The only Wall Street analyst providing a rating for the stock rated it Buy. Currently trading at $2.27, the average analyst price target of $4 represents a 76.2% potential upside.
STNE shares were trading at $34.25 per share on Friday morning, down $0.01 (-0.03%). Year-to-date, STNE has declined -59.19%, versus a 18.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master’s degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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