The combination of a new interest rate cut cycle and a swelling stock market will set up a fertile environment for more mergers and acquisitions in 2025. Lower interest rates will make financing the buyouts cheaper, while a rising stock market will enhance the buying power of acquirers using their stock in the transactions. The incoming Trump administration, with its initiatives to rein in government bureaucracies and loosen regulations, can also lighten roadblocks for companies looking to merge. Here are three stocks in the computer and technology sector that are viable acquisition targets in 2025.
Twilio: Communications Platform to Further Enhance Collaborations and CX Journeys
Communication technology provider Twilio Inc. (NYSE: TWLO) enables businesses to add and enhance communication features, including voice, messaging, and video, to their applications. The company is a leading Communications-as-a-Platform (CPaaS) provider that has enhanced its technology with artificial intelligence (AI). Its CustomerAI platform, which includes AI-enhanced features like the Traffic Optimization Engine, Voice Intelligence, Fraud Guard, Branded Calling, and SendGrid Engagement Quality, has accelerated its growth trajectory, sending shares to 52-week highs. The company is edging closer to GAAP profitability, but shares are arguably richly priced in the $107 range. The CPaaS market is forecasted to grow 15.8% from 2022 to 2026.
Solid Q3 and Upside Guidance Bolsters Premium
In its third quarter of 2024 earnings report, Twilio reported non-GAAP EPS of $1.02, beating consensus estimates by 15 cents. GAAP losses were trimmed down to $5 million.
Revenues grew 9.7% YoY to $1.13 billion, firmly beating $1.09 billion consensus analyst estimates. As of Sept. 30, 2024, Twilio had over 320,000 active accounts.
For Q4, Twilio issued upside guidance of 95 cents to $1.00 versus 88 cents consensus estimates. Revenues are expected between $1.15 and $1.16 billion versus $1.15 consensus estimates.
Potential Acquirers: MSFT, AMZN, CRM
The hyperscalers are potential acquirers as they could integrate Twilio's cloud communications platforms into their services and infrastructure. Microsoft Co. (NASDAQ: MSFT) could integrate Twilio's CPaaS service and platform into its Azure cloud platform and Teams collaboration software. Amazon.com Inc. (NASDAQ: AMZN) could also integrate Twilio’s platform into its AWS platform and e-commerce ecosystems. Salesforce Inc. (NYSE: CRM) is a viable acquisition partner that could integrate Twilio into its customer relationship management (CRM) platform.
DocuSign: E-Signature Pioneer Enhances Document Generation and CLM
The COVID-19 pandemic was a boon to DocuSign Inc. (NASDAQ: DOCU) as lockdowns and social distancing measures accelerated the adoption of e-signatures. The transition remained sticky as businesses continued to use and honor e-signatures to save time and money to streamline contract closures.
DocuSign logically enhanced its services to encompass contract lifecycle management (CLM) and document generation and enhanced it with generative AI workflow automation and collaboration features.
DocuSign Crushes Its Forecasts
DocuSign reported fiscal Q2 2025 EPS of 97 cents, beating consensus estimates by 12 cents. Revenues rose 7% YoY to $736.03 million, beating $727.2 million consensus estimates.
Billing grew 2% YoY to $724.5 million versus $7.15 to $7.25 million previous estimates. Its non-GAAP profit margin surged to 32.2%, crushing its 27% to 28% previous guidance and 24.7% margin in the year-ago period.
DocuSign raised its FQ3 revenue guidance to $743 million to $747 million versus $739.50 million consensus analyst estimates. It raised fiscal full year 2025 revenue guidance to $2.940 to $2.93 billion versus $2.93 billion consensus estimates.
Potential Acquirers: MSFT, AMZN, ORCL
The company remains very relevant and sticky—sticky enough to be an accretive acquisition for a larger player looking to enhance its collaboration capabilities. Microsoft and Amazon are both potential acquirers that could offer e-signature and CLM features on their respective cloud platforms, Azure and AWS. Oracle Co. (NYSE: ORCL) is another hyperscaler that could add DocuSign’s features to its Oracle Cloud and enterprise offerings.
Zoom: Video Conferencing and Work Collaboration Suite
The biggest benefactor from the COVID-19 pandemic was Zoom Communications Inc. (NASDAQ: ZM), as the world embraced its video engagement and conferencing technology. The company saw triple-digit gains in both top line and share price, peaking at an eye-watering $588.84 per share.
However, the 90% drop afterward was just as eye-watering (tears) as normalization kicked in as the pandemic moved into the rearview mirror. Growth has started to resume again in single, and its stock price has been up 14.9% year-to-date (YTD) as of Dec. 3, 2024. The company has focused on growing its enterprise business and added collaboration and generative AI around its video software to create a full collaborative workflow ecosystem.
Recovery Accelerates in Q3
Zoom reported Q3 EPS of $1.38, beating estimates by 7 cents. Revenues rose 3.6% YoY to $1.18 billion, beating consensus estimates of $1.16 billion. Enterprise revenue rose 5.8% to $698.9 million, with $100,000 ARR customers rising 7.1% YoY.
Zoom has over 320,000 active customer accounts, up from 306,000 in the year-ago period. Zoom repurchased 4.4 million shares in the quarter and increased its total stock buyback authorization by $1.2 billion. This brings the total buyback authorization amount to $2 billion.
Zoom raised its Q4 EPS guidance to $1.29 to $1.30 versus $1.28 consensus estimates. Zoom expects revenue of $1.75 billion to $1.18 billion versus $1.17 billion consensus analyst estimates.
Potential Acquirers: MSFT, GOOGL, CRM, AMZN
While many hyperscalers have video conferencing functionality, they could enhance them with Zoom's technology, arguably more streamlined and easier to implement for the end user. Microsoft could enhance its Teams platform with Zoom's video technology and comprehensive collaboration suite. Alphabet Inc. (NASDAQ: GOOGL) Google could improve its clunky Google Meet video conferencing software to strengthen its position. Salesforce could enhance its CRM platform for customer engagements and virtual meetings with Zoom’s videoconferencing technology, which is more streamlined and arguably easier to use than Amazon's Chime, the default video service.
One benefit of Zoom over the aforementioned acquisition targets is its $7.5 billion in cash and cash equivalents, which is nearly 25% of its market cap. This makes the company more attractive for a takeover since financing is easier and the net acquisition cost is lower.
