Tech Takeover Targets?

06/30/2016 9:00 am EST


Rob DeFrancesco

Founder, Tech-Stock Prospector

Software is king these days and the recent surge in software M&A could lead to even more transactions, explains technology expert Rob DeFrancesco, editor of Tech-Stock Prospector.

Industry rivals are jockeying for key growth assets because they suddenly feel compelled to match what others are doing on the deal front in order to stay competitive.

In trying to come up with a good list of viable takeover targets in software, I small- and mid-cap stocks that have solid fundamentals and top-line growth.

Shopify (SHOP), provider of a cloud-based commerce platform for smaller businesses, is #1 in terms of top-line expansion, with the 2016 consensus revenue estimate of $346.4 indicating growth of 68.8%.

Shopify is transforming into a mobile-first vendor, as orders on mobile in Q1 surpassed those on the desktop for the first time ever. In terms of traffic to the platform, 62% comes from mobile devices.

Zendesk (ZEN), provider of a cloud-based software platform used by customer service departments, is expected to deliver 2016 revenue growth of 45.4%.

The company is signing up more enterprise customers; Zendesk boasts tighter security, better compliance and more data centers.

Bigger customers boost transaction sizes: The number of Q1 deals with an annualized value of at least $50,000 rose 50% year over year; the average size of those deals advanced 30%.

HubSpot (HUBS), a provider of cloud-based inbound marketing software, would be attractive to potential buyers because it has a large addressable market.

It also has an expanded channel partner program, new products in the portfolio and a strong growth profile. Revenue in 2016 is expected to be up just over 42%.

Cornerstone OnDemand (CSOD), a provider of cloud-based HR/human capital management (HCM) solutions, has a customer base of 2,670 accounts and more than 25 million users.

The stock has had an impressive run from its February low of $22.25, recently hitting a 52-week high at $42.61.

Fleetmatics (FLTX) provides cloud-based mobile workforce solutions; with its software, fleet operators gain visibility into things such as vehicle location, fuel usage, route logistics, speed and mileage.

For 2016, revenue is expected to rise 20.5%. The stock is down from its all-time high of $62.86 reached in December.

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By Rob DeFrancesco, Editor of Tech-Stock Prospector