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Is There Gain Potential in These 3 Software Stocks?

The software industry is poised for significant growth, fueled by digitization and the rising adoption of business-oriented SaaS platforms. Given this landscape, let us find out if software stocks Blackbaud (BLKB), Yalla Group (YALA), and Kaltura (KLTR) are the right investments...

The software industry is growing, propelled by the increasing digitization and automation across industries. Given the rosy prospects of the industry, investors could consider quality software stocks Blackbaud, Inc. (BLKB), Yalla Group Limited (YALA), and Kaltura, Inc. (KLTR). Prior to delving into the highlighted stocks, let us examine the industry dynamics.

The demand for business software and services is expected to be driven by the rapid increase in the volume of enterprise data and the increased automation of business processes across end-use industries such as retail, manufacturing, healthcare, and transportation.

The global business software and services market is expected to expand at a CAGR of 11.9% until 2030.

Moreover, as the company grows, they require business-oriented SaaS platforms that are able to encode corporate policies, processes, and rules. SaaS platforms are also useful in improving communication, enhancing corporate efficiency, and exploring new revenue-generating market opportunities.

The global software as a service (SaaS) market is expected to grow at a CAGR of 13.9% until 2032.

In addition, increasing number of smartphone users, growing adoption of connected devices, and surging e-commerce sector provide lucrative opportunities for the growth of the application development software market. The global application development software market is projected to reach $1.16 trillion by 2031, growing at a CAGR of 23.5%.

Considering these conducive trends, let's take a look at the fundamentals of the three best software stocks, mentioned above.

Blackbaud, Inc. (BLKB)

BLKB provides cloud software solutions to higher education institutions, K–12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies, and individual change agents in the United States and internationally.

On November 6, 2023, BLKB announced the launch of Prospect Insights Pro, a new add-on capability within Blackbaud Raiser's Edge NXT that delivers on a key component of Blackbaud's Intelligence for Good strategy. This solution will give researchers and fundraisers access to even more AI-driven insights to support planned and major gift fundraising.

BLKB’s trailing-12-month EBIT margin of 7.60% is 54.4% higher than the 4.92% industry average. Its trailing-12-month EBITDA margin of 14.11% is 49.8% higher than the 9.42% industry average.

In the fiscal third quarter that ended September 30, 2023, BLKB’s total revenue increased 6.2% year-over-year to $277.63 million, while its total gross profit increased 11% from the prior-year quarter to $155.86 million. Its non-GAAP net income grew 68.2% from the year-ago quarter to $60.50 million. Non-GAAP earnings per share increased 62.3% year-over-year to $1.12.

The consensus revenue of $298.71 million indicates a 8.7% increase year-over-year for the fiscal fourth quarter (ending December 2023). The consensus EPS estimate of $1.05 for the same quarter indicates a 54.4% increase year-over-year. Also, the company has surpassed EPS estimates in each of the trailing four quarters, which is impressive.

BLKB’s shares have gained 54.8% over the past year to close the last trading session at $87.51.

BLKB’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

BLKB has an A grade for Growth and B in Stability and Sentiment. It is ranked #8 out of 43 stocks in the B-rated Software - Business industry.  

Click here to see the additional POWR Ratings for BLKB (Momentum, Value, and Quality).

Yalla Group Limited (YALA)

Based in Dubai, United Arab Emirates, YALA is a social networking and entertainment platform. It offers mobile applications such as Yalla, a voice-centric group chat platform, and Yalla Ludo, a casual gaming app.

YALA’s trailing-12-month gross profit margin of 64.42% is 31.1% higher than the 49.13% industry average. Its trailing-12-month levered FCF margin of 24.34% is 209.5% higher than the 7.86% industry average.

For the fiscal third quarter that ended September 30, 2023, YALA’s revenue increased 6.4% year-over-year to $85.19 million. Its non-GAAP operating income rose 20.4% from the year-ago value to $35.45 million. Furthermore, the company’s non-GAAP net income and non-GAAP earnings per ordinary share grew 30.3% and 23.5% from the prior year’s quarter to $38.28 million and $0.21, respectively.

Analysts expect YALA’s EPS and revenue for the current quarter (ending December 30, 2023) to increase 24.2% and 4.7% year-over-year to be $0.75 and $317.85 million, respectively. The company has surpassed the revenue estimates in each of the trailing four quarters.

YALA’s shares have gained 67.9% over the past year to close the last trading session at $5.91.

YALA’s POWR Ratings reflect its positive outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

The stock is ranked #6 out of 131 stocks in the B-rated Software - Application industry.

Beyond what is stated above, we’ve also rated for Growth, Stability, and Momentum. Get all YALA ratings here.

Kaltura, Inc. (KLTR)

KLTR is a global provider of Software-as-a-Service (SaaS) products and solutions, operating internationally through its Enterprise; Education; and Technology (EE&T) and Media and Telecom (M&T) segments.

On November 8, KLTR announced that it had closed three seven-digit deals and twelve six-digit deals during the fiscal third quarter.

In September, KLTR expanded its partnership with Reshet 13, a major Israeli commercial broadcaster. KLTR powered Reshet’s full Cloud TV service in just three months, supporting various frontend devices like Smart-TVs, Android-TV, AppleTV, SVOD, and AVOD solutions.

Shuki Eytan, General Manager of Media & Telecom at KLTR, expressed excitement about adding value to Reshet 13’s digital evolution and contributing to their short and long-term digital transformation strategy.

KLTR’s trailing-12-month gross profit margin of 63.63% is 30.7% higher than the industry average of 48.67%. Its trailing-12-month asset turnover ratio of 0.90x is 44.9% higher than the industry average of 0.62x.

During the fiscal third quarter that ended September 30, KLTR’s subscription revenue rose 7.7% year-over-year to $40.85 million. Its total revenue increased 6.1% from the previous-year quarter to $43.54 million.

Its non-GAAP gross profit grew 4.9% year-over-year to $28.10 million and total operating expenses declined 12.6% from the year-ago quarter. Also, the company reported an adjusted EBITDA of $309 thousand, compared to a loss of $7.19 million in the same quarter last year.

Street expects KLTR’s EPS to rise 38.2% year-over-year in the fiscal year 2023. Its revenue is likely to increase 2.2% from the previous-year quarter to $172.57 million in the current year. Moreover, the company has exceeded the revenue estimates in each of the trailing four quarters.

The stock has surged 8.7% year-to-date to close the last trading session at $1.87.

KLTR’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.

The stock has a B grade for Value and Stability. It is ranked #10 in the 22-stock in the A-rated Software - SAAS industry.

To access KLTR’s additional ratings for Growth, Sentiment, Quality, and Momentum, Click here.

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BLKB shares were trading at $88.52 per share on Wednesday morning, up $1.01 (+1.15%). Year-to-date, BLKB has gained 50.39%, versus a 26.19% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.


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