After an epic run in 2020, many cloud computing stocks were bludgeoned in March. Sure, many of them were long overdue for a breather, but that doesn’t change a simple fact: Cloud-based services are the future and will continue growing at a rapid pace for years to come. For investors with a long-term mindset (at least a few years, but the more, the better), this recent sell-off is but a buying opportunity…
Bandwidth: The future of communications is the cloud
The 2010s were all about mobility. Mobile networks and smartphones making use of them turned into basic staples. But something interesting happened during the pandemic last year: While mobility was more important than ever during lockdowns and social distancing, cloud-based communications also gained serious traction among consumers and businesses alike.
Zoom Communications (NASDAQ:ZM) has of course become the name synonymous with this movement. A lesser-known name here is Bandwidth, which counts Zoom among its customers along with other big tech names, including Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), and Cisco Systems. Bandwidth helps companies embed voice, messaging, and emergency call features into their software services. Suffice to say, it had a pretty good year in 2020. Total sales grew 48% to $343 million — including an 82% year-over-year increase to $113 million during the fourth quarter alone.
Granted, $17.5 million of this Q4 revenue was attributable to Voxbone, the corporate contact center and enterprise-grade voice and messaging software company Bandwidth acquired on Nov. 1. Excluding Voxbone’s contribution, Bandwidth grew by “only” 54% from the year prior. Nevertheless, adding Voxbone’s software outfit to its own is highly complementary and will build on the company’s ability to attract new customers looking to give their operations a shot of modern cloud-based communications.
The economy is starting to gradually reopen, but that doesn’t mean the need for Bandwidth’s cloud-based subscription service is going away. Management forecasts that revenue will increase another 35% in 2021. The modern consumer wants flexible ways to stay in touch on their terms, and businesses are scrambling to meet those needs. As corporate budgets start to thaw this year, I expect Bandwidth will pick up plenty of new interest in its platform. And at just six times expected 2021 sales and on the cusp of generating positive free cash flow (free cash flow was -$10.1 million last year), this looks like an affordable growing cloud computing stock right now.
LiveRamp Holdings: Growth despite a fast-shifting digital advertising industry
LiveRamp is another affordable cloud computing stock after tumbling more than 40% from its all-time highs. Shares trade for under eight times trailing-12-month revenue, and though it’s facing challenges this year as it closes down some of its legacy digital advertising business, the company is still forecasting 10% growth during its fiscal 2021 fourth quarter (the three months ended March 31) and an initial outlook for 10% to 15% growth in fiscal 2022 (the 12-month stretch ending in March 2022).
LiveRamp operates a platform for marketers to access anonymized consumer data. As Apple (NASDAQ:AAPL) and Google close down cookies — device and website activity tracking advertisers use to target specific ads to consumers — parts of the software industry are grappling with how to monetize their creations. LiveRamp ATS is a cloud-based exchange that allows individuals to control their privacy settings but also allows publishers and marketers to exchange data. In a shifting digital marketing industry that is starting to give some much needed attention to personal digital information rights, LiveRamp offers a compelling solution for software developers looking for new ways to make money, too.
The only problem is the expected slowdown in LiveRamp’s growth in the next year, but the big pullback has now accounted for that issue. This cloud company is also in…
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