ServiceNow, Atlassian, Instructure, VMware are Macquarie's top enterprise software stocks
Sundry Photography/iStock Editorial via Getty Images

ServiceNow (NOW), Atlassian (NASDAQ:TEAM), Instructure (NYSE:INST) and VMware (NYSE:VMW) are investment firm Macquarie's top picks in the enterprise software sector, with the firm noting they are "well positioned" even if there is an economic downturn.
Analysts Frederick Havemeyer and Garrett Hinds note that enterprise software companies are largely well positioned if the economy were to hit the skids, but those that are considered "best-of-breed" are likely to give shareholders "solid" cash flow generation and sticky customer bases.
"Though we would likely see elevated churn, particularly from SaaS companies with a larger proportion of small-to-mid-sized businesses (as we saw at the start of the COVID-19 pandemic), we think that with solid balance sheets, a mind for profitable growth, and disciplined execution, enterprise software companies can weather the storm," the analysts wrote.
Regarding ServiceNow (NOW), the analysts think the company's consistent renewal rates, which range between 97% and 99%, "underscore its mission-critical positioning" inside other companies and can help the company re-accelerate subscription revenue growth to 28.5% year-over-year, compared to 28% in 2021.
ServiceNow (NOW) also has $4B in cash on its balance sheet and with guidance targeting a 31% non-GAAP free cash flow margin in 2022, the analysts believe it "offers a resilient economic model."
Atlassian (TEAM) is likely to benefit as it has a "low-touch, self-serve sales model" that lets the company spend between 14% and 17% of its total revenues on sales and marketing, while seeing more than 50% growth year-over-year in subscription revenue.
The company does have a "relatively high" exposure to small and medium-sized businesses among its 235K customers, but the company has executed well since the start of the pandemic and its ongoing subscription transition has allowed it to have a "growth buffer," the analysts added.
Instructure (INST), which helps the education market, is the market share leader in learning management systems, which the analysts believe represent "a stable customer base similar to corporate enterprises."
The company has emphasized the K-12 market and with multi-year tailwinds coming from fiscal stimulus, available through 2023, Instructure's (INST) software is seen as "mission-
critical" and its emerging platform strategy gives additional opportunities for up-selling customers. VMware (VMW), which is in the process of being acquired by Broadcom (AVGO) for $61B in cash and stock, is likely to see tailwinds as it moves to a software-as-a-service model, compared to a perpetual license, as well as its "sticky customer base."
The stock trades at roughly a 22% discount to the $142.50 per share offer price and the analysts do not expect any reduction in the offer, as VMware (VMW) has "numerous opportunities" to continue as an independent company and still drive shareholder returns.
The analysts also noted that VMware (VMW) shares are likely to perform better in the second-half as the supply chain normalizes and the acquisition could close sooner than the market expects, between three and six months, compared to forecast for nine to 12 months.

ServiceNow (NYSE:NOW) was recently recommended as a long pick from SurgoCap's Mala Gaonkar at the 2022 Sohn Investment Conference.