Such businesses often have sticky customers who find it either tough or troublesome to switch to another competitor or competing software. This attribute ensures that the company can grow its top line steadily while slowly garnering more customers.
With the convenience of a platform, customers can easily sign in to enjoy the benefits of the service, creating a win-win situation for both vendor and customer. As the SaaS company scales up its presence and innovates to offer more features, this will make existing customers stickier while pulling in new customers, thus helping to steadily grow the business.
Here are three attractive SaaS companies you should think of buying.
Data source: Docusign. Fiscal years end Jan. 31.
The digital signature specialist also saw a sharp improvement in its operating and net income, with both turning positive in fiscal 2024. In addition, the company also saw its free cash flow nearly double from $445.1 million to $887.1 million over the same period.
This strong performance has continued into the first nine months of fiscal 2025. Revenue rose 7.4% year over year to $2.2 billion while operating income soared more than sixfold to $139.5 million. Net income stood at $984.4 million, significantly higher than the prior year's $46.7 million, aided by a tax benefit of more than $804 million.
If we exclude this one-off item, profit before tax would have more than doubled year over year to $180 million. The business also generated a positive free cash flow of $640.7 million, slightly above the $638.6 million churned out in the previous corresponding period.
Docusign continued to innovate by releasing artificial intelligence (AI) features into its Intelligence Agreement Management (IAM) platform. The latest release includes the ability to extract insights from an extensive array of document types while allowing for document importation from third-party vendors such as Box, Dropbox, and Alphabet's Google Drive.
During the company's inaugural Docusign Discover event last November, the company launched "Docusign for Developers," a suite of tools and resources for developers and entrepreneurs to better manage their agreements. This launch integrates well with IAM and can help the platform to scale further. Management believes that Docusign's total addressable market stands at $50 billion, allowing for ample opportunities for the digital signature and agreement management company to grow further.
CrowdStrike (NASDAQ: CRWD) is a cybersecurity company with a cloud platform (Falcon) that provides data, identity, and endpoint protection for businesses. The business also utilizes AI for threat detection and monitoring to keep its customers' systems secure. CrowdStrike saw its revenue more than double from $1.4 billion to over $3 billion from fiscal 2022 to fiscal 2024. Like Docusign, the cybersecurity company also turned profitable in fiscal 2024, as shown in the table below.
| Metric | 2022 | 2023 | 2024 |
|---|
| Revenue (in billions) | $1.452 | $2.241 | $3.056 |
| Operating income (in millions) | ($142.548) | ($190.112) | ($1.995) |
| Net income (in millions) | ($234.802) | ($183.245) | $89.327 |
Data source: CrowdStrike. Fiscal years end Jan. 31.
CrowdStrike not only managed to grow its revenue over this period but also saw its free-cash-flow generation shoot sharply higher, more than doubling from $441.8 million in fiscal 2022 to $940.2 million in fiscal 2024.
The strong performance continued in the first nine months of fiscal 2025, with CrowdStrike delivering a 31% year-over-year increase in revenue to $2.9 billion. Net income more than doubled to $73 million. The company also generated a positive free cash flow of $827.1 million, a 26% jump from the $656.6 million generated in the previous year.
Annual recurring revenue ended above $4 billion for the third quarter, up an impressive 27% year over year from $3.2 billion. These numbers are encouraging and showcase the consistent growth of the business.
Founder and CEO George Kurtz remarked that CrowdStrike boasts a 97% gross retention rate for its Falcon platform, indicating the stickiness of its customer base. The company continued to release enhanced offerings that include cloud security, identity protection, and endpoint security, among others.
Other achievements include the establishment of a strategic partnership with Fortinet to work on delivering firewall protection and extending a partnership with 1Password to simplify security requirements for over 150,000 small and mid-sized businesses.
CrowdStrike's total addressable market for this calendar year stands at $116 billion but is expected to grow to $250 billion by 2029. This massive total addressable market implies that the cybersecurity company still has significant room to grow further.
HubSpot (NYSE: HUBS) offers a unified platform to help businesses connect and achieve better sales and marketing outcomes. The platform offers AI-powered engagement hubs, a community network, and customer relationship management services. The company may not be profitable yet, but it has grown its revenue and gross profit impressively over the years, as shown below.
| Metric | 2021 | 2022 | 2023 |
|---|
| Revenue (in billions) | $1.301 | $1.731 | $2.170 |
| Gross profit (in billions) | $1.042 | $1.417 | $1.825 |
| Gross margin | 80.1% | 81.8% | 84.1% |
Data source: HubSpot. Fiscal years end Dec. 31.
Crucially, gross margin has also expanded from 80.1% to 84.1% from 2021 to 2023, allowing gross profit to increase at a faster clip than revenue. The business also generated consistent positive free cash flow, which has grown from $176.8 million in 2021 to $250.7 million by 2023.
HubSpot's robust financial results continued for the first nine months of 2024. Revenue climbed 21.2% year over year to $1.92 billion while gross profit increased by 22.2% to $1.63 billion. Gross profit improved further, going from 84.2% to 84.9%. Free cash flow soared 81% to $312.5 million, demonstrating HubSpot's ability to generate higher levels of free cash flow over time. The company's customer count also grew by 23% to 238,000, a far cry from just 31,000 back in the first quarter of 2017.
Apart from organic growth, HubSpot has also relied on acquisitions to grow its business. Last October, the company acquired Cacheflow, a business-to-business subscription billing management firm. This acquisition will bolster HubSpot's suite of services to include subscription billing management and configure, price, and quote (CPQ) solutions.
Then, in December, HubSpot acquired Frame AI, an AI-powered conversation intelligence platform. By tapping Frame AI's capabilities, HubSpot will increase its ability to unify structured and unstructured data to allow its customers to make sense of conversations and translate them into actionable insights.
Management has identified a total addressable market of $76 billion last year that is set to grow to $128 billion by 2029. Of this pie, HubSpot occupies less than 10% of the market, thus giving the company ample opportunity to continue growing.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Royston Yang has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, CrowdStrike, Docusign, Dropbox, Fortinet, and HubSpot. The Motley Fool recommends Box. The Motley Fool has a disclosure policy.
3 No-Brainer Software-as-a-Service Stocks to Buy Right Now was originally published by The Motley Fool
