The old way of buying software has changed forever. If you wanted to purchase a piece of software 10 years ago, you had to spend hundreds of dollars in one go for something that could be out of date in just a few years.
Today, software companies have, by and large, shifted to a software-as-a-service (SaaS) business model. Instead of a one-and-done transaction, customers now subscribe to a software product that’s continually updated. This also serves to provide the software company with a reliable stream of recurring revenues.
The coronavirus pandemic has made SaaS shares popular among investors, as many businesses move their operations online – perhaps permanently for some.
On that note, let’s take a look at the five best performing ASX SaaS shares in 2020, and what their prospects might be in 2021.
|Company||1-year share price performance||Current share price||Market cap|
|1. Objective Corporation Ltd (ASX: OCL)||105%||$12.26||$1.2 billion|
|2. Xero Limited (ASX: XRO)||78%||$145.52||$21.3 billion|
|3. FINEOS Corporation Holdings PLC (ASX: FCL)||37%||$3.70||$1.1 billion|
|4. WiseTech Global Ltd (ASX: WTC)||26%||$31.09||$10 billion|
|5. Intellihr Ltd (ASX: IHR)||488%||$0.47||$0.13 billion|
1. Objective Corporation
The Objective Corporation share price has doubled, rising by 105%, in 2020.
Objective builds software largely for government and regulated industries.
This ASX share has been a success story in 2020, as the pandemic caused governments and businesses to spend on governance-related software to control online platform usage.
During FY20, the company saw fast growth for its product, the Objective GOV365. This is a governance product for Microsoft Teams, which grew from 20 million to 75 million daily users in 2020.
As a result, for the 12 months ended 30 June, the company reported revenue growth of 13% to $70 million – with 75% of this revenue classed as recurring.
For FY21, the company said it was committed to research and development (R&D) and will continue to spend 20% of revenues on R&D.
Management also said that in FY21, it was “expecting a material lift in revenue and profitability”.
The Xero share price has had a fantastic year, rising by 78%.
Xero is a New Zealand cloud-based accounting software provider and has cemented its place as New Zealand’s most valuable company.
Its market capitalisation on the ASX of more than $21 billion comfortably tops Fisher & Paykel Healthcare Corp Ltd (NZE: FPH)’s NZ$19 billion value on the NZ Stock Exchange.
The company is growing very fast, with a 2.45 million customer base and half-year operating revenue of NZ$410 million.
It has performed particularly strongly during the COVID-19 pandemic, gaining record numbers of customers and forcing the company to be very disciplined with costs.
Analysts believe there are two things going for Xero as we go into 2021.
Firstly, the company’s offering is entirely cloud-based, which puts it in pole position as the shift to cloud-based computing gathers pace globally.
Secondly, accounting software services saw a surge in demand in 2020 as businesses look to minimise headcount and monitor their costs tightly, and this could continue on to 2021 and beyond.
Shares in insurance software developer FINEOS have soared 38% higher so far this year.
In its FY20 results, the Dublin-based company beat its own revenue targets, reporting growth of close to 40% year on year to 88 million euros.
For FY21, the company is forecasting top line revenue growth of 20%, underpinned by 30% growth in subscription revenues.
The company has also achieved important milestones in 2020.
In February, it signed the Prudential Insurance Company of America, the largest insurance company in the United States, as a customer.
In August, the company made headlines again when it acquired Silicon Valley insurance software company, Limelight Health. The company expects that acquisition to help boost its presence in the US market.
With a market capitalisation of a little over $1.1 billion, this ASX share could grow into a solid mid-cap in 2021 with consistent subscription revenues, and a portfolio of top-tier insurance companies as clients.
The WiseTech share price has risen a respectable 27% for the year.
WiseTech develops cloud-based software solutions for the international and domestic logistics industries and has more than 12,000 customers using its software across 150 countries.
Along with Xero, the company is part of the so-called WAAAX shares, a select group comprising some of Australia’s fastest growing technology companies.
In its latest guidance, WiseTech announced that its full year revenue for FY21 would be between $470 million to $510 million, representing growth of 9% to 19% from the prior year.
The company is also expecting its supply management software, CargoWise, to contribute a recurring revenue market share growth of 15% to 30% in FY21.
WiseTech has made substantial cost reductions of $10 million in FY21, and expects more cost reductions in the range of $20 to $30 million in FY22.
As the world moves to cloud-based computing, the WiseTech share price will be one to watch in 2021 and beyond.
I’ve put the Intellihr share last on the list despite its superior share price returns, as it’s a small cap company.
The Intellihr share price has gained almost 500% in 2020.
The company is a SaaS provider that develops and sells cloud-based human resources (HR) management software.
In its first-half FY21 reporting, the company said subscriber numbers on its platform have increased 148% year on year and doubled in the first 5 months of FY21 with a total of around 30,000 subscribers.
As a result, the company’s contractual annual recurring revenue (ARR) increased to $2.8 million, which it expects to grow even further in the second half of FY21. This represents a new record ARR acquisition for the company.
Intellihr also has its plate full working on future strategies, with plans to triple its sales capabilities and partnerships in Australia, New Zealand, North America and Europe.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Microsoft. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Objective Limited and Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends FINEOS Holdings plc. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended FINEOS Holdings plc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
- These 2 ASX small cap shares just hit 52-week highs – January 12, 2021 5:41pm
- Objective (ASX:OCL) share price continues its rise in 2021 after doubling last year – January 12, 2021 4:41pm
- New twist in 5G Networks (ASX:5GN) takeover of ASX-listed Webcentral – January 12, 2021 4:03pm