There is an article on Barron’s today about cloud software stocks:
Cloud Software Stocks Rise on M&A Hopes
Salesforce is paying 16 times MuleSoft’s projected revenue of $411 million for 2018, according to FactSet. Even looking out further, at 12 times 2019’s estimated revenue, the price is amazing.
SendGrid is another candidate, trading at 7.3 times revenue. MongoDB, a maker of a new kind of cloud computing database, fetches an even-less-demanding 6.8 times. Another we highlighted last year is Appian (APPN), whose data-visualization software tools are served up from the cloud. It fetches just 6.7 times next year’s revenue. SendGrid has the distinction of being profitable, while MongoDB and Appian are not. But then, MuleSoft wasn’t, either, so it doesn’t necessarily matter.
Even though AYX was not mentioned in the article, I still think AYX and MDB have the best potential no matter if they will be acquired.
- Small market cap to start with. (This makes them more likely to be acquired).
- Leader in each field. Switching cost high in both fields. If they continue to grow faster than competitors, network effect will make them winners take most of their markets.