There are quite a few quality software as a service (SaaS) ASX shares that could be worth looking at in February 2021.
Businesses that make their money through a SaaS model usually have attractive levels of recurring business and the software nature of the company means it can have high operating profit margins.
Here are two examples:
ELMO Software Ltd (ASX: ELO)
ELMO describes itself as a cloud-based human resources (HR) and payroll software provider. The company offers customers a unified platform to streamline processes for HR and also manage payroll and rostering, time and attendance. It operates on a SaaS business model based on recurring subscription revenue.
The SaaS ASX share recently released its FY21 second quarter update to the market. It said that it achieved record cash receipts over a 12-month period of $64.5 million, which was up 23% compared to the prior comparative period.
For the quarter ending 31 December 2020, it received cash receipts of $18.8 million, which was an increase of 22.1% compared to the prior corresponding period.
The company has been busy with acquisitions over the last few months. In October 2020 it acquired Breathe, which expanded ELMO's market opportunity with entry into the small business market in Australia, New Zealand and the UK. In December 2020 it acquired Webexpenses, which gave the SaaS ASX share entry into the expense management sector. Management also said this accelerated ELMO's mid-market expansion into the UK market.
Annual recurring revenue (ARR) increased by 42.8% year on year to $74.2 million at 31 December 2020. This was driven by new customer growth, the cross-sell to the SaaS ASX share's existing customer base and boosted by the acquisitions of Breathe and Webexpenses.
For FY21, ELMO is guiding that ARR will finish in a range of between $81.5 billion and $88.5 million. FY21 revenue is expected to be between $65 million and $71 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to finish as a loss somewhere in the range of negative $2.4 million to negative $7.4 million.
Altium Limited (ASX: ALU)
Altium is one of the world's leading electronic PCB software businesses. It says that its software focuses on electronics design systems for 3D PCB design and embedded system development. It boasts that its products are found everywhere from world leading electronic design teams to the grassroots electronic design community.
A key focus of the SaaS ASX share is Altium 365, its new cloud platform.
The company is pivoting the business towards Altium 365 after separating its cloud operations from its software business and will focus on growing the market opportunity and expansion into the broader electronics ecosystem.
Altium's management is referring to this change as Altium's Netflix moment which is commonly referred to in the high-tech industry as a hard pivot to the cloud. Netflix started off as a DVD business.
Each Altium division will have its own leadership and organisational roadmap, which will allow the cloud business to develop at a different cadence and to form a SaaS-like organisational structure around its product and go-to-market processes.
One benefit from this change is that it will be able to separate high-volume sales from high-touch sales to support the SaaS ASX share's journey to 100,000 subscribers by 2025 and dominate the PCB design industry.
Sergey Kostinsky has been appointed to the role of President and he will be responsible for driving high performance in the execution of all operational domains with a particular emphasis on the rapid development and adoption of Altium 365.
