SaaS Stocks Rebound After Sell Off At End Of 2018

The Software-as-a-Service market took hit at the end of 2018 as investors sold off tech-related stocks in droves. After all, the stock market got increasingly volatile as fears about the trade war between the U.S. and China reverberated across the entire landscape.  It didn’t help that SaaS stocks had a strong showing throughout the year, with some companies enjoying meteoric growth.

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The new year seems to be picking up where investors left off, excluding the December malaise. While Apple dealt the tech sector another blow when it issued a warning for its fourth quarter, outside of that, publicly traded SaaS companies are on the upswing.

Take the BVP Nasdaq Emerging Cloud Index for one example.  The index, which was launched in the fall of last year is more than 5% higher since the start of 2019. The index tracks the performance of emerging public companies that are involved in the cloud software market. Meanwhile, some of the well-known publicly held SaaS companies including Box, Dropbox, Twiio and SendGrid are all moving higher in January.  

Dropbox is one example of a SaaS stock that got beat up last year only to see its fortunes improve in 2019. The cloud storage company ended the year with a stock down 28%, underperforming the 3.2% decline in the S&P 500. Shares appeared to have suffered from negative sentiment for the tech sector, driven by a confluence of things from data breaches to the trade war in China, rather than something company specific. After all, it was able to post revenue growth throughout last year.  The sentiment toward Dropbox is shifting in the new year as shares begin to recover.

On the other side of the spectrum is fast-growing Twiio. After ending the year more than 278% higher, shares of the cloud communications platform as a service company are continuing the ascent. Impressive earnings reports for consecutive quarters last year and more growth expected in 2019, is supporting the current stock price.

What’s driving investor interest in the sector as a whole, and thus the stocks' performance so far in 2019, are technological advances and innovations that are transforming the way companies of all sizes conduct business. Cloud computing, predictive analysis, augmented reality and artificial intelligence are just a few examples of technology innovations coming out of the software industry, boosting productivity and costs savings for companies around the globe. With competition fierce, businesses are increasingly focused on enhancing customer service, which is also driving sales of customer relationship management software.  

At the same time, they are moving more of their operations to the cloud, which means increased demand for a variety of SaaS platforms.  Add information technology spending on a global basis that is expected to grow around 3% this year and it's no wonder SaaS stocks are moving higher.