If you're not familiar with the "software-as-a-service" (SAAS) space, you might want to be, because it encompasses a lot of powerful performers. Some are huge, familiar businesses, and many are smaller start-ups.
In a nutshell, a software-as-a-service company offers businesses and/or consumers access to useful software without those customers having to host that software (and its required hardware) on-site. Instead, the software resides in the cloud. For example, a business might use a SaaS company's software to manage its payroll services, help administer its clinical trials, or host and analyze its databases.
Image source: Getty Images.
Making millions
So how might you become a millionaire via SaaS stocks? The same way you would with any stocks. By investing money -- ideally meaningful sums regularly -- and giving the companies a lot of time to grow in value. The S&P 500 index of 500 of America's biggest companies has averaged annual gains annual gains of close to 10% over many decades. And many SaaS companies have been growing at a faster clip.
The table below models how your money might grow at 10% and at a faster rate, 15%:
$10,000 invested annually and growing for | Growing at 10% | Growing at 15% |
|---|---|---|
10 years | $175,312 | $233,493 |
15 years | $349,497 | $547,174 |
20 years | $630,025 | $1,178,101 |
25 years | $1,081,818 | $2,447,120 |
30 years | $1,809,434 | $4,999,569 |
35 years | $2,981,268 | $10,133,457 |
40 years | $4,868,518 | $20,459,539 |
Source: Calculations by author.
Note, of course, that depending on which stocks and/or indexes you invest in, and over what periods, your average annual gains might be greater than 15% or below 10%. There are not guaranteed returns.
Here are three SaaS companies to get to know and to consider for berths in your long-term portfolio. See which ones interest you most.
Three promising SaaS companies
Here are the companies, in the table below. I've selected them because their business prospects are promising and their valuations currently seem either attractive or at least reasonable. If you're interested in any, you'll want to research them further, but I'm offering a few data points as a start. Remember that these numbers might go up or down sharply in short order, if a company starts performing notably better -- or worse.
Company | Market capitalization | Recent quarterly revenue growth, year over year | Net profit margin | Forward price-to-earnings (P/E) ratio |
|---|---|---|---|---|
Block(NYSE: SQ) | $44 billion | 11.2% | 2.9% | 15.4 |
Veeva Systems(NYSE: VEEV) | $35 billion | 14.6% | 23.9% | 32.1 |
Zoom Video Communications(NASDAQ: ZM) | $22 billion | 2.1% | 19.1% | 13.6 |
Source: Yahoo! Finance as of late October, 2024.
1. Block
Block is a major player in fintech (financial technology), encompassing businesses such as Square, Cash App, TIDAL, and TBD. Square helps other businesses and consumers make commercial transactions -- you may be familiar with their countertop tablet-like payment terminals found in many stores and restaurants. Cash App lets users spend, send or invest money.
Block is well positioned to keep benefiting from the move toward digital payments -- both domestically and abroad. The company has been adding services in order to attract -- and keep -- more customers. Some investors are waiting for it to boost its profitability, though.
2. Veeva Systems
Veeva Systems is a business serving mainly the life sciences industry with its cloud-based services -- for example, helping pharmaceutical companies manage clinical trials for drugs in development. Its 1,000-plus customers include many of the biggest pharma companies and small biotech companies. Like many SaaS companies, it also uses a subscription model, generating fairly reliable recurring revenue. It has been a strong grower in recent years.
A particularly promising growth driver for Veeva is its move into new niches, where it can serve new customers. These include medical devices, consumer products, and chemicals.
3. Zoom Video Communications
Zoom is almost a household word, with many millions having participated in Zoom-hosted video conference calls. The company offers more, though, such as its AI-powered, collaborative "Zoom Workplace" platform; its Zoom Business Services for sales, marketing, and customer care teams; its Zoom Contact Center for managing customer relationships, and more. Zoom boomed during the pandemic's early years and is working on boosting growth again.
A plus is that many customers it gained during the pandemic's early years have stuck around and can now be offered more services. The company has embedded AI features for more than a million accounts, and customers have been spending more lately.
More possibilities
So... among the Saas companies above, which one(s) should you invest in? Which ones will make you a millionaire? Well, any of them could, but there's no way to know just how each of them will perform in the years ahead. You might also look into some well diversified giants, such as Alphabet and Microsoft, that also have considerable SaaS operations, largely due to massive cloud computing platforms.
Remember, too, that you don't have to choose individual companies. Instead of looking for the needles in the haystack, you might just invest in the haystack, such as via an SaaS-focused exchange-traded fund (ETF). Promising possibilities include the Fidelity Cloud Computing ETF(NYSEMKT: FCLD), the iShares Expanded Tech-Software Sector ETF(NYSEMKT: IGV), or the broader iShares US Technology ETF(NYSEMKT: IYW).
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $22,292!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,169!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $407,758!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of October 28, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Selena Maranjian has positions in Adobe, Alphabet, Block, Microsoft, and Veeva Systems. The Motley Fool has positions in and recommends Adobe, Alphabet, Block, DigitalOcean, Microsoft, Veeva Systems, and Zoom Video Communications. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
