Amid the hybrid working trend, businesses are increasingly adopting software solutions to enable employees to accomplish more in less time. Gartner predicts worldwide IT spending to exceed $4 trillion next year. Also, the trends in cybersecurity, customer retention, and low-code development should propel the industry’s growth.
Moreover, the adoption of cloud platforms is expected to accelerate as the world depends more on remote activities due in part to the spread of the COVID-19 omicron variant. Also, investors' optimism surrounding the software industry is evident in the iShares Expanded Tech-Software Sector ETF's (IGV) 11% returns over the past year.
Given this backdrop, we think it could be worth adding software stocks Yalla Group Limited (YALA) and Zedge, Inc. (ZDGE) to one’s watchlist. They are currently trading at less than $10 and could deliver significant upside in the near term.
Click here to check out our Software Industry Report
Yalla Group Limited (YALA)
Headquartered in Dubai, the United Arab Emirates, YALA is a social networking and entertainment platform in the Middle East and North Africa region. The company offers group chatting and games services through its Yalla and Yalla Ludo products. YALA operates its business through Ayla UAE, Hangzhou Yale, and Shenzhen Moov.
YALA’s revenues increased 110.8% year-over-year to $71.31 million for the third quarter ended September 30, 2021. The company’s operating income came in at $25.74 million, versus a $30.91 million operating loss in the third quarter of 2020. Its net income amounted to $25.33 million, compared to a $30.98 million net loss in the prior-year quarter.
Analysts expect YALA’s revenue for its fiscal year 2022 to be $347.91 million, representing 28% growth year-over-year. The company has an impressive earnings surprise history; it beat the consensus EPS in three of the trailing four quarters. Also, its EPS is expected to grow 22.8% in the current year. YALA closed the last trading session at $6.09.
YALA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Quality and a B grade for Growth and Value. We have also graded YALA for Sentiment, Stability, and Momentum. Click here to access all YALA’s ratings. YALA is ranked #13 of 169 stocks in the Software - Application industry.
Zedge, Inc. (ZDGE)
Incorporated in 2008, ZDGE in New York City is a digital publishing platform that offers Zedge, a consumer-facing mobile personalization app. The company also provides a wide range of personalized wallpapers, video wallpapers, ringtones, notifications sounds on Android, wallpapers, and ringtones on iOS.
This month, ZDGE started offering its creators, which range from celebrities to artists, the ability to create and sell NFTs in the Zedge Premium marketplace. The launch of the NFTs should empower artists with the "NFTs Made Easy" utility, enabling them to compete without deep cryptocurrency experience.
ZDGE’s total revenue increased 57.9% year-over-year to $6 million for its fiscal first quarter, ended October 31, 2021. The company’s operating income grew 136.4% from its year-ago value to $2.6 million. Its net income rose 110% from the prior-year quarter to $2.1 million. Also, the company’s EBITDA increased 114.3% year-over-year to $3 million.
Analysts expect ZDGE’s revenue for its fiscal year 2022 to be $24.75 million, representing 26.5% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS in three of the trailing four quarters. The company’s EPS is expected to increase 16.9% next year. Closing yesterday’s trading session at $9.36, ZDGE’s stock has surged 65.4% over the past year.
It is no surprise that ZDGE has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Quality and a B grade for Value and Sentiment.
Click here to see the additional POWR Ratings for ZDGE (Momentum, Stability, and Growth). ZDGE is ranked #28 in the Software - Application industry.
Click here to check out our Software Industry Report
YALA shares were trading at $5.94 per share on Tuesday morning, down $0.15 (-2.46%). Year-to-date, YALA has declined -58.55%, versus a 29.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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