Many high-growth tech stocks rallied last year as their core businesses accelerated throughout the pandemic. Consumers made more online purchases, accessed more cloud-based services, played more video games, and relied on remote communication tools to continue working. But this year, many of those high-flying stocks stumbled as investors fretted over their high valuations and post-pandemic slowdowns…
But it would be a bad idea to sell all of your high-growth tech stocks just because market sentiment is shifting. Many of the sector’s fastest-growing names could still have plenty of room to run — so it might be wise to accumulate some shares during the downturn instead.
I personally started new positions in three high-growth tech stocks over the past month: Roku (NASDAQ:ROKU), Zoom Video Communications (NASDAQ:ZM), and Coupang (NYSE:CPNG). I’ll explain why I was initially skeptical about these three companies — and why I eventually changed my mind.
I wasn’t impressed by Roku when it went public at $14 per share in 2017. I thought it faced too much competition in the streaming device space, that smart TVs would displace stand-alone streaming devices, and that it would struggle to expand its higher-margin software platform to reduce its dependence on lower-margin devices.
But after taking a fresh look at Roku, I realized the expansion of its software platform — which generates its revenue from ads and content partnerships — was paying off. Not only did its software platform lock in its viewers, advertisers, and content partners, but it boosted its gross margins and enabled it to sell its devices at lower prices to stay competitive.
Last year Roku’s number of active accounts rose 39% to 51.2 million, its ARPU (average revenue per user) increased 24%, its gross margin expanded from 150 basis points to 45.4%, and its total revenue climbed 58% to $1.78 billion. Analysts expect its revenue to rise another 55% to $2.8 billion this year as it continues to expand its software ecosystem with new original shows for its ad-supported Roku Channel, and for it to end the year with a full-year profit — compared to a net loss in 2019.
Roku’s stock might seem expensive at 21 times this year’s sales, but its impressive evolution into an online software and advertising company arguably justifies that premium valuation.
2. Zoom Video
I was also bearish on Zoom for a long time. When it went public at $36 per share in 2019, I thought it was just another video conferencing platform. When its growth accelerated throughout the pandemic last year, I thought its momentum would fade after the crisis ended.
But then I looked at why Zoom gained tens of millions of users while its competitors floundered. The answers were simple: It was easier to use than its enterprise-oriented peers, it had a catchy brand, and its free tier convinced power users (like schools and businesses) to upgrade to paid tiers for longer and larger meetings with more collaborative tools.
That’s why Zoom’s revenue skyrocketed 326% to $2.65 billion in fiscal 2021, which ended this January, as its adjusted net income soared 883% to $995.7 million. Analysts expect Zoom’s revenue and earnings to…
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