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Nicholas Kitonyi
Nicholas Kitonyi
Articles  | Author's Website |

Is It Time to Invest in Business Intelligence Software Stocks?

IoT and big data are driving growth and SAP SE could be a good place to start

October 28, 2018 | About:

The stock market has shelled a significant market value over the last five weeks as we head towards the end of the year. Based on the current signals, it looks like not even the final earnings season of the year could help the market recover to the previous yearly highs.

All the major indices have dropped massive points, and there is the talk of a potential decline that could push the market towards lows last witnessed in February this year. As such, some investors have opted to flee the technology industry and moved some of their investments in the defensive utilities sector. But the question is, is it all that bad in the tech sector? Or could this be an opportunity to buy the dip?

The technology sector is diverse with the most prominent companies mainly dealing with computing software and related accessories, and hardware (which includes smart devices and gadgets). Yet, so often investors tend to forget about one of the most promising markets in the sector: the business intelligence and analytics software market, which is capitalizing on the growth of the Internet of Things (IoT) and big data. The IoT and big data markets have contributed to an increase in the adoption rate of Software-as-a-Service technologies as businesses seek to keep pace with new data analytics concepts.

It is a fast-paced world now, and the dynamic nature of the business environment requires that businesses either adapt or risk falling behind their competitors. As such, automation of business operations among small businesses now cuts across the board, and this has created an insatiable demand for SaaS business intelligence services that help businesses to gain access to and analyze insights about consumer behavior. They can then use this information to develop business strategies that will help them perform better in a business environment that has been changing so rapidly over the last decade.

The workplace is becoming a highly interconnected network, where employees can share information with each other regardless of whether they are at work, or at home. The same concept is repeated in the business-to-customer and business-to-business verticals. This in part, is what is driving the growth of IoT as businesses try to manage the flow of information between the multiple devices and entities connected.

In addition, to gain customer insights, businesses have no option but to utilize big data analytics tools to mine and analyze data from platforms such as social media and internet forums where consumers spend most of their time these days. They can then use such information to optimize digital advertising campaigns and improve customer targeting and conversion rates. A such, the demand for sophisticated software to analyze these data is on the rise, and that’s why some of the recent research reports predict that the business intelligence and analytics software market will hit $55.5 billion by the year 2026, growing at a CAGR of about 10.4%.

Now, with this kind of growth expected in the business intelligence and analytics market, the obvious question would be which companies are likely to benefit from it, and can investors take advantage of the current drop in stock prices by buying the dip? While major tech players like International Business Machines Corp. (NYSE:IBM) and Microsoft Corp. (NASDAQ:MSFT) are notable beneficiaries, there are a few that could benefit more given their business specializations. SAP SE (NYSE:SAP), Tableau Software Inc. (NYSE:DATA) and privately held Looker, founded six years ago, are but a few.

SAP is a leading player in the business enterprise software market. The company makes enterprise software to manage business operations and customer relations and has rapidly been growing its cloud services marketplace over the last few years.

Anyone looking for a company to invest in that will help capitalize on the business intelligence and analytics growths story — SAP would be the perfect place to start.

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The company has enjoyed sustained top-line growth since the 2009 global financial crises and based on analyst estimates, the same is expected to persist in the foreseeable future.

SAP reported third-quarter 2018 results last week, and its cloud business continued to boost overall business growth convincing management to raise guidance on 2018 outlook. But the company’s stock price remained notably lower as the general market plunge continued to pull down most of the tech stocks. Some investors are aggressively diversifying their investments to more defensive stocks in the utilities sector.

Such activity suggests that it could possibly get worse before it gets better in the technology sector, but analysts are also predicting that the major indices could hit new all-time highs in the first half of 2019. Therefore, should SAP and its counterparts in the business intelligence and analytics software market endure the current stock market meltdown, a major rally in 2019 could see investors reap the benefits of their patience.

SAP’s cloud business is booming after witnessing a rise in cloud subscriptions and support revenue of 39% in the most recent quarter. The company’s top line topped 6 billion Euros, which puts it on course to breach the 25 billion euro mark, or nearly $30 billion. Street analysts are predicting an annual revenue of $29.2 billion.

This growth trajectory is expected to continue for the next two years, which makes SAP an interesting investment vehicle for those looking to capitalize on the business intelligence and analytics software market growth.

Disclosure: I have no positions in the stocks mentioned in this article.

About the author:

Nicholas Kitonyi
Nicholas the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on research sites like Seeking Alpha and Benzinga.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. As a trader, Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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