The stock market just suffered its worst first-half performance in decades. The decline has deeply affected growth stocks, and some are selling at more than 75% off 52-week highs.
However, the S&P500 broke out of bear market territory, and the Nasdaq Compound is up about 20% from its June lows. Such a rally may indicate that it is time to consider growth tech stocks such as Snowflake (SNOW 0.48%), Twilio (TWLO 1.54%)and Spotify Technology (PLACE 0.73%).
Good fundamentals won’t keep shares of this tech company down for long
Justin Pope (Snowflake): Bear markets are frustrating because they can drive down all stock prices, like a tide that recedes at sea and sinks all ships; you can’t do anything about it. Buying stocks in a bear market is never fun, but it’s often a smart move when things look up.
Snowflake is the perfect candidate for a rebound from the market recovery. Everything you do online produces data that can be tracked and analyzed; it’s like leaving digital footprints. Companies can use this data to learn more about you and the products and services they sell, which makes the data very valuable. But the data is often messy and fragmented; trying to make sense of a pile of data from many sources can quickly become a nightmare.
Snowflake’s cloud-based data warehouse is a place where data can be stored, integrated, and analyzed. It takes all the randomly shaped puzzle pieces (data) and helps companies put them together to see the big picture. Users can run queries to quickly find what they are looking for.
The company grew revenue 106% year-over-year in its 2022 fiscal year, which ended January 31, 2022. Revenue totaled $1.4 billion over the past four quarters, and management estimates it will hit $10 billion by 2029. Only 6,300 customers use Snowflake. today, therefore, there is plenty of room for the growth needed to achieve this goal.
Snowflake generates free cash flow; it already converts 16% of its revenue into cash profits despite a long road of growth and expansion ahead. Seeing the company turn positive so soon is a good sign of the company’s profitability in the future; management estimates that it will eventually increase its free cash flow to 25% of sales.
The company’s IPO came at a time when the market was euphoric, and the stock’s strong growth and a healthy dose of investor enthusiasm pushed the stock to a price-to-sales ratio (P/ S) over 150, arguably the most expensive. name on Wall Street at the time.
Now at a P/S of 36.98, the stock has descended to Earth. I wouldn’t call his current valuation cheapbut long-term investors should see the company grow in its valuation, and then some if it executes on its long-term growth goals.
The company that makes much of today’s tech boom possible
will heal (Twilio): Companies such as Airbnb, DoorDashand Lyft would struggle to do business if it weren’t for cloud-based communications through smartphones. For this service, these companies choose Twilio more often than any other company.
Twilio supports voice, video, chat, and email communications in a single platform. Although it is not the only company providing communications platform as a service (CPaaS), it is the one with the largest market share. Additionally, switching platforms is a very disruptive process for its customers, greatly reducing the likelihood of Twilio losing customers.
Additionally, it has strengthened its competitive advantage with off-the-shelf products such as Flex and Segment. Flex acts as an integrated customer contact center, while Segment compiles customer data that it can transport when needed. These products save customers time, as they would otherwise have to build such applications from scratch.
These offerings helped Twilio generate more than $1.8 billion in revenue in the first half of 2022, 38% more than the same period last year.
Yet challenges remain. Cost of sales increased by 51% and operating expenses increased by 36%. As a result, net losses during the period increased to $544 million in the first two quarters of 2022 from $434 million a year ago. Additionally, the company expects revenue growth to slow to between 30% and 32% in the third quarter, which led to a one-day drop in the stock price of 13%.
However, analysts expect the company to turn profitable in 2023 after posting years of losses. Additionally, its P/S ratio of just under five is near all-time lows for the stock.
Additionally, the stock has fallen more than 80% from its intraday peak of around $457 per share in February 2021. Such a rise in stock price and earnings outlook could make the stock Twilio a buy despite its Q3 outlook.
Spotify benefits from the growth of audio streaming
Jake Lerch (Spotify): It’s part of human nature: we like to listen. Music. Stories. Conferences. Some things work better when we to listen them rather than see Where Lily their.
It’s one of the reasons I love Spotify. The company is focused on delivering audio content from creators to listeners. And although the company is a “streamer”, it does not directly compete netflix, disney, Primordial, et al. in the video streaming wars.
Instead, Spotify focuses on audiophiles. It offers an extensive library of music and podcasts. He also wants to expand into audiobooks.
Financially, the company has just announced a superb quarter. Management raised the guidelines; key metrics such as monthly active users have increased.
Nonetheless, Spotify shares are down around 50% year-to-date – hit by the same slump that pushed the Nasdaq Composite down 20% this year.
However, for investors looking for a growth title with a lot of trail ahead of it, Spotify could be a solid choice. Wall Street expects the company to generate $12 billion in revenue this year. Analysts expect revenue to hit $13.8 billion in 2023. That’s good for a growth rate of between 12.5% and 15% over the next 18 months.
Additionally, Spotify shares are trading at a historically low valuation. The company’s price-to-sales (P/S) ratio is 1.97. That’s near its all-time low of 1.51 and well below its three-year average of 4.25.
Additionally, the company’s CEO, Daniel Ek, repurchased $50 million worth of stock in May. While not all insider buying is timely, so far Ek’s investment has paid off. Spotify shares have jumped about 17% since its purchase. Retail investors looking to play in the audio streaming market might be wise to follow his lead.