Cloud products often tend to have low switching costs. The best way to create exit barriers is to have a Platform-as-a-Service (PaaS) strategy and invite entrepreneurial developers to come develop apps on it. As apps gain traction, some of the startups developing them can be acquired. Integration is easy because of the technology stack compatibility.
This is my analysis of how SaaS companies need to be scaled inorganically.
With this lens on, I have identified a set of cloud stocks that look promising for the next decade.
2. ServiceNow (NYSE: NOW). Their PaaS strategy is more recent, but it is starting to gain traction. I foresee excellent execution on this front, and the performance will be reflected in the stock price. Currently, about 350 applications are in the marketplace. I also expect ServiceNow to acquire from this pool. Further analysis here.
3. Workday (NYSE: WDAY). Their PaaS strategy is relatively new. Further analysis here.
4. Twilio (NYSE:TWLO). PaaS is core to their strategy. What they need, however, are System Integrator partners that take the PaaS into enterprises and find new use cases. Startups like Uber constitute a very large percentage of their revenue mix. I am watching for signals on what other startups have the potential for significant revenue impact. Further analysis here.
5. Atlassian (Nasdaq: TEAM). Excellent company. Excellent PaaS strategy that is starting to take off. They have also started acquiring from their PaaS developer eco-system. It has a thriving marketplace that offers more than 1,500 Jira apps and nearly 850 Confluence apps. Further analysis here.
6. Splunk (NASDAQ: SPLK). PaaS is core to their strategy. Cyber Security is becoming a core use case. I would want to know what other use cases are gaining traction besides security. Further analysis here.
A number of companies are currently following API strategies and haven’t come up with fullyfleshed out PaaS yet. These include Zendesk (NYSE: ZEN), Hubspot (NYSE:HUBS), and Smartsheet (Nasdaq: SMAR). Further analysis here:
There are some other companies to look at that have interesting PaaS strategies: Amazon, Google, Microsoft. None of them, however, are pure plays, and their stocks have many other factors influencing them. I have, however, analyzed their PaaS strategies if you’re interested:
Intuit and Xero have interesting PaaS strategies, but are not pure plays. You can review my analysis here:
SAP and Oracle also have PaaS strategies that you can review here:
Adobe has a PaaS strategy: Adobe Delivers Via PaaS
Finally, Shopify has had a tremendous stock run up and has a very good PaaS strategy. Further analysis here. I do not recommend this stock because it has a significant looming threat from Amazon.
If you’re an equity analysis covering any of these stocks, happy to dialog here.
This segment is a part in the series : Cloud Stocks