Software stocks’ quarterly performance is expected to have significantly benefited from an uptick in the demand for software-based services and products as a result of the coronavirus-led growing work-from-home and learn-from-home trends.

Increased spending by enterprises on software procurement, the growing proliferation of Software-as-a-Service or SaaS-based services, the rapid migration to cloud platforms, solid adoption of video-conferencing software and rising user penetration of online payment solutions are likely to have remained major tailwinds for software companies in the fourth-quarter 2020.

Solid performance delivered by Microsoft MSFT indicates resiliency in the software industry amid the ongoing pandemic. Its recently reported quarterly results were driven by strong momentum in Azure and impressive Teams user growth, triggered by ongoing digital transformation, and remote working and learning trend.

Further, PayPal’s PYPL strong fourth-quarter 2020 results, which were driven by solid momentum across Venmo and strong customer engagement that led to a spike in its new active accounts, testifies to the same.

In addition to this, Aspen Technology, which reported second-quarter fiscal 2021 results, benefited from solid growth in its bookings.

Blackbaud BLKB also benefited from the rapid migration of enterprises to cloud amid the pandemic-induced digitization in fourth-quarter 2020.

Prospects for Software Stocks

The spike in the adoption of cloud-based services, the increasing proliferation of IoT and AR/VR devices, and the accelerated deployment of 5G are expected to have aided the performances of software stocks this earnings season.

Strong momentum across enterprise collaboration software, remote desktop tools, natural language processing tool, time tracking tools and cyber security software is expected to have hugely favored the software industry in fourth-quarter 2020.

Additionally, the growing proliferation of AI-powered voice recognition, telemedicine, learning management, infrastructure monitoring and business spend management software is expected to have benefited the industry players in the quarter under review.

Further, enterprise workspace solutions, enterprise communication platforms, and online education portals, which have been high in demand throughout 2020, are likely to have contributed well.

How to Make the Right Choice?

With the presence of several industry participants, finding the right software stocks with the potential to beat on earnings can be daunting. Our proprietary methodology, however, makes this task fairly simple.

You could narrow down your choices by looking at the stocks that have the perfect combination of the two key elements — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is our proprietary methodology for determining the stocks that have the maximum chances of beating estimates at their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with the apt mix of ingredients, the odds of a positive earnings surprise are as high as 70%.

Best Bets

Sunnyvale, CA-based CrowdStrike Holdings CRWD is slated to report fourth-quarter fiscal 2021 results on Mar 16. The company presently has an Earnings ESP of +57.75% and a Zacks Rank #2. The Zacks Consensus Estimate for earnings has been revised upward by 12.5% to 9 cents per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

CrowdStrike Holdings Inc. Price and EPS Surprise

CrowdStrike Holdings Inc. Price and EPS Surprise

CrowdStrike Holdings Inc. Price and EPS Surprise

CrowdStrike Holdings Inc. price-eps-surprise | CrowdStrike Holdings Inc. Quote

Pleasanton, CA-based Workday WDAY is scheduled to report fourth-quarter fiscal 2021 results on Feb 25.The company currently has an Earnings ESP of +0.90% and a Zacks Rank #2. The Zacks Consensus Estimate for earnings has been stable at 56 cents per share in the past 30 days.

Workday, Inc. Price and EPS Surprise

Workday, Inc. Price and EPS Surprise

Workday, Inc. Price and EPS Surprise

Workday, Inc. price-eps-surprise | Workday, Inc. Quote

Holon, Israel-based, Sapiens International Corporation SPNS is scheduled to report fourth-quarter 2020 numbers on Feb 25. The company currently has an Earnings ESP of +1.96% and a Zacks Rank #3. The Zacks Consensus Estimate for earnings has been revised upward by 4% to 26 cents per share in the past 30 days.

Sapiens International Corporation N.V. Price and EPS Surprise

Sapiens International Corporation N.V. Price and EPS Surprise

Sapiens International Corporation N.V. Price and EPS Surprise

Sapiens International Corporation N.V. price-eps-surprise | Sapiens International Corporation N.V. Quote

San Francisco, CA-based Twilio TWLO is set to report fourth-quarter 2020 result on Feb 17. The company has an Earnings ESP of +34.78% and a Zacks Rank #3 at present. The consensus estimate for loss has been stable at 8 cents per share in the past 30 days.

Twilio Inc. Price and EPS Surprise

Twilio Inc. Price and EPS Surprise

Twilio Inc. Price and EPS Surprise

Twilio Inc. price-eps-surprise | Twilio Inc. Quote

Zacks Top 10 Stocks for 2021

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Workday, Inc. (WDAY) : Free Stock Analysis Report

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