Earnings from the U.S. tech sector are entering the busiest part of the reporting season, with Netflix and Microsoft already releasing their quarterly results last week, while heavyweights like Facebook, Amazon, Google-parent Alphabet, and Apple are scheduled to post their respective reports in the coming days.
Beyond these big names, there is a lesser-known category of tech stocks that should be on investors’ radar: the Software & Services Industry Group. Trading just below an all-time high, this sector has rallied roughly 33% since the start of 2019, outperforming the NASDAQ’s 24% increase.
Here are three top-performing software stocks to consider ahead of their quarterly reports.
1. Shopify: Multichannel E-Commerce Platform
Shopify (NYSE:SHOP) stock has been a big winner in 2019, surging a whopping 138.5%. The Canadian e-commerce software company helps merchants set up online retail shops and manage their brands. It also offers add-ons such as digital payments and shipping.
Shares ended at $330.22 on Tuesday, within sight of an all-time high of $340.92 touched on July 22, giving it a market cap of $36.8 billion.
Shopify next reports earnings before the U.S. market opens on Thursday, August 1. Consensus calls for earnings per share (EPS) of $0.03 for the second quarter, up from EPS of $0.02 in the year-ago period. Revenue is forecast to rise 43% from the same period a year earlier to $350.46 million, as more merchants pay for the company's Plus subscription plans.
Shopify Plus represented 26% of the $44.2 million in monthly recurring revenue (MRR) in the first quarter, up from 22% in the year-ago period. Investors will be eager to see whether the e-commerce provider can deliver another strong performance from its Shopify Plus plans in Q2.
Markets will also pay close attention to growth in Shopify’s native payments processing technology, Shopify Payments, which surged 65% year-over-year (YoY) in Q1.
In a move that bodes well for the future, Shopify announced in June that it was investing $1 billion to build a distribution network for its U.S. customers, which could help its mostly small and midsize customers compete more effectively against Amazon (NASDAQ:AMZN).
2. Trade Desk: Digital Ad-Buying Specialist
Trade Desk (NASDAQ:TTD) shares have more than doubled so far this year, rallying 111%, with investors growing increasingly bullish on the digital ad-buying specialist. The Ventura, California-based company, which operates a self-service software platform where customers can buy and manage data-driven digital advertising campaigns, has benefited from a growing wave in digital ad-purchasing.
The stock closed at $245.43 last night, giving it a market cap of $10.9 billion. Shares, which are up 740% from their September 2016 IPO price of $29.12, reached an all-time high of $258.00 on June 20.
Trade Desk is scheduled to release second-quarter earnings on Thursday, August 8, after the close. Consensus calls for EPS of $0.68, up 13% from earnings of $0.60 per share in the year-ago period. Revenue is forecast to rise 38% YoY to $155.16 million from $112.33 million.
Investors will be keen to see if the software-as-a-service (SaaS) company continues to enjoy explosive growth in its mobile video, connected TV, and audio markets, which surged 60%, 300% and 270% YoY respectively in Q1.
3. Paycom: HR Payroll Services Software Provider
Shares of Paycom (NYSE:PAYC), a supplier of human resource software, have been on a tear this year as strong demand for its cloud-based human capital management (HCM) software-as-a-service (SaaS) drives gains.
The stock, which is up around 90% year-to-date, closed at $231.89 yesterday, not far from a record high of $246.85 touched on July 11. At current levels, the Oklahoma City-based company has a valuation of roughly $13.5 billion.
Paycom is expected to publish second-quarter earnings after the markets close on Tuesday, July 30. Consensus calls for EPS of $0.70, which would indicate a YoY EPS growth rate of 18%. Revenue is expected to rise 27% from the same period a year earlier to $163.88 million.
Perhaps of greater interest, investors will keep an eye on Paycom's update regarding its client additions to see whether it can maintain its torrid pace of growth. Wall Street will also be curious to hear how the recent launch of Paycom’s new Direct Data Exchange impacted revenue and client wins, as it continues to steal market share away from the much larger Automatic Data Processing (NASDAQ:ADP).