Some tech giants have found 2021’s stock market a less hospitable environment than recent years. The post-covid landscape has seen some of the world’s biggest companies - Apple and Amazon immediately come to mind – fall behind the S&P 500’s performance.
Microsoft (MSFT), however, has kept up the pace, year-to-date just edging ahead of the benchmark index’ gains.
According to Wedbush’s Daniel Ives, the signs are there for Microsoft to continue pushing ahead, and Ives thinks the growth potential of its cloud business is being underestimated.
“We believe the Street's view of moderating cloud growth on the other side of this 15 month WFH cycle is contrary to the deal activity MSFT is seeing in the field,” the 5-star analyst said. “While we have seen the momentum of this backdrop in the last few years, we believe deal flow looks incrementally strong (Office 365/Azure combo deals in particular) heading into FY22 as we estimate that Microsoft is still only ~35% through penetrating its unparalleled installed base on the cloud transition.”
Ives’ comments follow June quarter checks which indicate many companies are readying themselves for increasing adoption of “cloud driven architecture.”
Transition to the cloud is now a top IT priority for businesses, and Ives thinks CIOs (chief information officers) have already given the green light for 85%-90% of “these cloud deployments.” And via its cloud service Azure, the analyst believes Microsoft is better positioned than Amazon’s AWS to gain share in what he calls the “cloud arms race.”
By the end of 2021, Ives forecasts enterprise workloads on the cloud will grow from 35% at present to 44% and increase to 55% by next year.
While the company’s heavyweight tech peers are set to make bank from the estimated $1 trillion TAM (total addressable market) this digital transformation represents, it is Microsoft that is best placed to reap the rewards.
“We believe this disproportionally benefits the cloud stalwart out of Redmond, as Nadella & Co. are so well positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery,” Ives summed up.
To this end, there’s no change to Ives’ rating which stays an Outperform (i.e., Buy) or price target which remains at $310. The implication for investors? Upside of 24%. (To watch Ives’ track record, click here)
Looking at the consensus breakdown, Ives’ colleagues are in complete agreement. All 24 recent reviews say Buy, naturally culminating in a Strong Buy consensus rating. The average price target clocks in at $297.87, suggesting one-year returns of 19%. (See Microsoft stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
ZipRecruiter (ZIP), which operates an online marketplace to help businesses locate potential employees, made its debut on the NYSE last week, with shares jumping 17% to $21.10 on its first day of trading.
The company went public via a direct listing, meaning it did not raise any capital in the offering. Advisors on the deal included Goldman Sachs (GS), J.P. Morgan (JPM), Barclays (BCS), Evercore ISI, William Blair, and Raymond James. (See IPO calendar on TipRanks)
Streamlining Job Searches
Ian Siegel, along with several other business partners, founded ZipRecruiter in 2010. The team had strong experience in the online world, with involvement in companies including CitySearch, Stamps.com (STMP) and Rent.com.
Even though online job search sites have been around since the early days of the internet, they have often been cumbersome. Additionally, they frequently provide poor matches between candidates and job positions.
The founders of ZipRecruiter thought there was an opportunity to make the process much easier. One of the keys was to focus on sophisticated technologies like ML (Machine Learning) and AI (Artificial Intelligence).
According to the company's S-1filing, “Through our deep learning-based natural language processing, we understand job seekers’ and employers’ nuanced needs. We model and analyze clicks, applications, hiring signals, and numerous other interactions to improve outcomes for all participants in our marketplace. Our advanced technology stack processes the data generated by our highly engaged user base to continuously improve our matchmaking.”
This strategy has certainly been spot on. Since the launch of the site, the company has served more than 2.8 million business and assisted 110 million job seekers. ZipRecruiter also has the No. 1 rated job-seeker app on iOS and Android, a position it has held for the past four years straight.
The Growth Story
As should be no surprise, the Covid-19 pandemic had a major impact on ZipRecruiter’s top line. From 2019 to 2020, the company's revenues dropped from $429.6 million to $417.1 million.
However, the company was swift in cutting costs and finding ways to automate operations. The result is that ZipRecruiter was actually able to post a profit of $63 million in 2020. Moreover, this number was based on GAAP (Generally Accepted Accounting Principles), which is impressive and quite rare for tech IPOs.
Fortunately, as the Covid-19 pandemic has started to fade, growth has gotten back on track for ZipRecruiter. In the first quarter, revenues were up by 11% to $125.4 million and the current quarter is on track for growth of 25% to 30%.
For full-year 2021, the company projects that revenues will increase at 39% to 44% year-over-year.
This prediction could actually prove to be an underestimate. As companies need to ramp up for the reopening of the U.S. economy, there will likely be strong demand for services like ZipRecruiter.
Bottom Line On ZipRecruiter
ZipRecruiter is in an intensely competitive industry. After all, the company has to fight tough rivals like Indeed.com and Microsoft’s (MSFT) LinkedIn.
Then again, with the reopening of the economy, there should be opportunities for all the major platforms. The fact is that millions of people have been out of work for a considerable amount of time. What’s more, ZipRecruiter should stand out from its competition, as its AI systems help to scale the business and provide more optimal matches.
For investors looking for a trade to play the economy's reopening, this stock looks like a good choice.
Disclosure: Tom Taulli does not have a position in ZipRecruiter stock.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.