MORGAN STANLEY: Enterprise software companies like Salesforce and Workday could double in value by 2020

"Across our coverage group of 32 subscription-based models, we saw an average 30% revenue growth in 2017 (29% median)," the report says.

That strong topline growth, combined with the improving efficiencies inherent in subscription software businesses translates into lots of room for operating margins to grow. Morgan Stanley has even coined a name for its SaaS company valuation model: Margin Medicine, which it defines as a framework for "for projecting efficiency improvements in subscription revenue models."

Companies in this group could see 40% growth in terms of earnings before interest and taxes (EBIT). Collectively, these companies generate $3 billion in EBIT, which Morgan Stanley forecasts will grow to $16 billion in EBIT by 2022.

Among the stocks Morgan Stanley marks as most likely to see gains are Salesforce (CRM), ServiceNow (NOW), Proofpoint (PFPT), RealPage (RP), and Workday (WDAY), and Veeva Systems (VEEV).

5 key ingredients

Morgan Stanley lists five factors that it believes will combine to provide a 30% point average boost in operating margins at SaaS companies:

1. Sales and Marketing efficiency, as headcount growth slows
2. Shifting in revenue mix towards subscription revenue instead of professional services
3. Spreading R&D investments across a broader group of customers
4. Savings in General and Administrative costs
5. Improving subscription renewal rates from enterprise customers

With these gains, some of the SaaS companies could double in enterprise value, Morgan Stanley says.

Here are the 32 companies included in its analysis:

8x8 Inc., AppFolio, Appian, Box, Cloudera, Coupa Software, Castlight Health, EllieMae, Five9, GoDaddy, HubSpot, Instructure, Mindbody, Medidata Solutions, MongoDB, New Relic, Proofpoint, Qualys, Q2 Holdings, RealPage, Red Hat, RingCentral, Salesforce.com, SendGrid, ServiceNow, Shopify, Sophos Group, Veeva Systems, Workday, Workiva, Yext, Zendesk.