In this article we discuss the 5 best software stocks to buy according to billionaire Paul Tudor Jones. If you want to read our detailed analysis of Jones’ history and hedge fund performance, go directly to the 10 Best Software Stocks to Buy According to Billionaire Paul Tudor Jones.
5. ServiceNow, Inc. (NYSE: NOW)
Value: $6,987,000
Percent of Paul Tudor Jones’ 13F Portfolio: 0.197%
No. of Hedge Fund Holders: 96
ServiceNow, Inc. (NYSE: NOW) specializes in the development of cloud computing platforms used by companies to digitize workflow.
ServiceNow was recently named a leader in the 2021 Gartner Magic Quadrant for Enterprise Agile Planning (EAP) tools. The company has been recognized in the last three years for its IT Business Management (ITBM) product suite, but this is the first time the company has been named as an industry leader.
ServiceNow Q1 2021 revenue was up 30.8% YoY to $1.36 billion, while GAAP EPS was $0.41, beating estimates of $0.12.
ServiceNow, Inc. (NYSE: NOW) has announced plans to acquire Intellibot, a robotic process automation company that customers will use to automate repetitive tasks and bolster ServiceNow’s hold on the Indian market.
Alex Zukin analyst at Wolfe Research initiated coverage on ServiceNow and gave it an “Outperform” rating with a price target of $270.
Baron Opportunity Fund, in its Q1 2021 investor letter, mentioned ServiceNow, Inc. (NYSE: NOW). Here is what Baron Opportunity Fund has to say about ServiceNow, Inc. in its letter:
“We believe short-term focused investors and consensus often miss the longer-term strength and durability of growth and business-model efficiency (earnings and free cash flow margins) of truly special businesses. An example of this is ServiceNow, a SaaS-industry leader and pioneer, and a long-time Fund investment. As shown in the table below, over the seven years from March 2014 through March 2021, ServiceNow experienced eight multiple declines that averaged –32%, ranging from a low of –19% to a high of –52%.
But during that period, ServiceNow demonstrated compounding revenue performance and stronger operating leverage and FCF generation than expected by consensus. The table below shows the first quarter 2014 projections of one of the top software analysts on the Street, Keith Weiss of Morgan Stanley, versus what ServiceNow achieved.
As you can see, over this three-year period, ServiceNow beat revenue expectations by $315 million, or 29%, and generated FCF margins of 23%, trouncing estimates by $186 million, or 138%.The compounding effects of seven years of strong revenue growth and FCF generation drove ServiceNow’s share price to increase from $70.03 on March 5, 2014 to $500.11 on March 31, 2021, a 32% annualized return. A 7-bagger!
ServiceNow delivered these point-a-to-point-b returns despite the eight multiple pullbacks described above, including the one that occurred towards the end of the first quarter. The power of faster-for-longer, cash-generative business models.”
4. Zendesk, Inc. (NYSE: ZEN)
Value: $7,040,000
Percent of Paul Tudor Jones’ 13F Portfolio: 0.199%
No. of Hedge Fund Holders: 58
Zendesk, Inc. (NYSE: ZEN) is one of the top software stocks to invest in. The stock has a very strong and positive outlook, according to several analysts.
Cowen recently raised the stock’s rating to Outperform and its price target to $195 from $195 after the company’s better-than-projected results for Q1 FY2021. During the quarter, the company reported non-GAAP EPS of $0.17, beating the Street by $0.05.
The company’s revenue during the quarter beat analyst projection by $3.3 million to $298.05 million.
ZEN ranks 4th in the list of best software stocks to buy according to billionaire Paul Tudor Jones.
The company projects its 2021 revenue to range between $317 million and $322 million. Zendesk’s GAAP operating income in 2021 is expected to range between $42 million and $38 million, while non-GAAP operating income will range between $20 million and $24 million.
Citi also raised its Zendesk, Inc. (NYSE: ZEN) price target from $120 to $187 on a strong earnings report. Zendesk recently announced the appointment of Netflix lead designer Steve Johnson and NBA exec Brandon Gayle to its board.
In its Q4 2020 investor letter, Wasatch Ultra Growth Fund highlighted a few stocks and Zendesk Inc. (NYSE:ZEN) is one of them. Here is what Wasatch said:
“Zendesk, Inc. (ZEN) was also a top contributor. The company provides business software using the software-as-a-service (SaaS) model. Zendesk has experienced strong demand throughout the Covid19 pandemic from customers in e-commerce, as well as from other businesses with employees working from home. Additionally, demand from clients in the travel and hospitality industries has picked up as global economies have begun to reopen. Adjusted earnings per share rose 42% in the company’s most recent quarter on revenue growth of 24% compared to the same quarter a year ago. An improved sales outlook from Zendesk’s management also helped lift the stock.”
3. Datadog, Inc. (NASDAQ: DDOG)
Value: $7,705,000
Percent of Paul Tudor Jones’ 13F Portfolio: 0.218%
No. of Hedge Fund Holders: 52
Datadog, Inc. (NASDAQ: DDOG) is a monitoring service for cloud-scale applications specializing in monitoring databases, servers, services, and tools through a SaaS-based data analytics platform. Datadog has been one of the best software stocks to buy with a strong balance sheet and solid financial performance.
Datadog recently announced revenues of $177.53 million for Q4 FY 2020, representing a 56.2% increase from what was reported during the same period in 2019. The company’s GAAP operating loss amounted to $8.9 million and a GAAP operating margin of 5%. During the quarter, non-GAAP operating income was $18.1 million while non-GAAP operating margin was 10%.
The technology has also reported a significant increase in the number of customers, with the number of $1M+ ARR customers increasing to 97 from 50.
DDOG ranks 3rd in the list of best software stocks to buy according to billionaire Paul Tudor Jones.
Datadog has announced plans to acquire SaaS security platform Sqreen and observability data pipeline Timber Technologies for an undisclosed amount. Under the acquisition deal, Timber CEO Zach Sherman and co-founder and CTO Ben Johnson will be absorbed into Datadog under the product and engineering departments.
The acquisition of Sqreen is expected to bolster Datadog’s existing APM functionality as the company moves closer to providing full-stack security monitoring solutions.
Datadog, Inc. stock has received favorable analysis and rating from analysts. Truist recently gave a Buy rating and a price target of $120. On the other hand, Jefferies analyst Brent Thill strongly believes the stock will continue to outperform in 2021. Thil upgraded his rating from Hold to Buy and a price target of $275.
2. Cloudflare, Inc. (NYSE: NET)
Value: $9,667,000
Percent of Paul Tudor Jones’ 13F Portfolio: 0.273%
No. of Hedge Fund Holders: 60
Cloudflare, Inc. (NYSE: NET) is a U.S-based web infrastructure and website security company that specializes in DDoS mitigation, content delivery network services, distributed domain name server services, and Internet security. It is one of the best software stocks to buy as per recommendations from many investors and hedge funds.
In 2016, the technology company announced the launch of Cloudflare Workers, which allowed users to write their codes in their preferred language. The company has signed a partnership with NVIDIA Corporation (NASDAQ: NVDA) to see Cloudflare Workers boost its scalability and access deep and secure learning methods.
For machine learning, the Workers platform will be integrated with Nvidia GPUs and the TensorFlow open source library and tools that customers will use to launch AI applications using custom or pre-made models for reference.
In its most recent review, Truist upgraded the Cloudflare, Inc. (NYSE: NET) from Hold to Buy and lifted its price target to $110 from $75. According to analyst Joel Fishbein, Cloudflare has been launching new innovative solutions that have attracted many new users and increased sales opportunities.
Thanks to the Workers products, Cloudflare is “seeing strong attach rates,” the note said. The increase in attach rates is also attributed to a significant increase in the number of users in the company’s core solution.
Cloudflare, Inc. (NYSE: NET) launched its corporate network alternative called Magic WAN, which is more secure, flexible, faster, and cost-friendly. Magic WAN has an in-built Magic Firewall making it an SaaS solution that allows users to securely connect services, data, and cloud networks to Cloudflare’s global network without hardware boxes.
In its Q4 2020 investor letter, Alger Mid Cap Focus Fund highlighted a few stocks and Cloudflare Inc. (NYSE:NET) is one of them. Here is what Alger Mid Cap Focus Fund said:
“Cloudflare. Inc. provides a broad range of network services to businesses of all sizes across the world. Cloudflare’s intelligent global network spans more than 200 cities in over 100 countries. It offers network security, performance and reliability to a growing portion of global web traffic. Today. over 15% of global internet requests go through Cloudflare. Cloudflare’s serverless network design allows this global network to be a key component layer as new developments for edge cornputing. 5G and Internet of Things increase the importance of secure. reliable edge networks. Cloudflare stock outperformed in the fourth quarter following the announcement of Cloudflare One, a cloud-bas. network-as-a-service platform designed to replace the traditional enterprise network infrastructure. The Cloudflare One solution merges existing Cloudflare access and security solutions along with new enterprise-specific features into a unified Zero Trust network that can be managed through a single “pane of glass.” or display screen. With the rapid shift to remote work caused by the pandemic, this product increases Cloudflare’s potential for winning business from enterprise customers seeking to adapt to this new business environment.
While Cloudflare One adoption is still early. Cloudflare has already started to demonstrate an improved ability to sell to large customers. When discussing its third quarter results. Cloudflare said that it is continuing to sign up larger enterprise customers. including its first client to generate more than $10 million in annual recurring revenue. Cloudflare has just started to better monetize its more than 100.000 paying customer base. which along with continued product innovation, gives the company strong growth potential.”
1. Slack Technologies, Inc. (NYSE: WORK)
Value: $93,448,000
Percent of Paul Tudor Jones’ 13F Portfolio: %2.641
No. of Hedge Fund Holders: 66
Slack Technologies, Inc. (NYSE: WORK) is a channel-based messaging platform that allows people to work together effectively by easily connecting to other software and getting access to information they need to do their work.
In a recent statement, Slack CEO Stewart Butterfield announced that plans are at an advanced stage to introduce an audio messaging feature that will allow users to make Skype and Zoom-like calls and send pre-recorded audio messages. The feature, which is still in beta testing, will launch a feature similar to Clubhouse, allowing users to engage in audio chats without launching a call or scheduling a meeting.
The COVID-19 pandemic has spurred a boom in the online meeting industry as companies close their physical offices and turn to virtual operations. In Q4 FY2021, the company reported $250.6 million in total revenue and officially crossed $1 billion in revenue run rate. This is a record 41% increase compared to what the company reported in 2019. During that period, Slack Technologies, Inc. (NYSE: WORK) added more than 14,000 net new paid customers, bringing its total to 156,000.
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