The market indexes may have pulled back from their record highs hit last month, but that doesn't mean there aren't plenty of companies not ready to run higher still. We asked three Motley Fool contributors to look into the tech sector to pick out three of their favorites that can continue having a huge, positive impact on your portfolio over time. See if you don't agree that Twilio (TWLO), Apple (AAPL), and what some might consider a dark-horse candidate, Fitbit (FIT), still have a lot to offer.
This winner will keep winning
Steve Symington (Twilio): Twilio already boasts an enviable leadership position in its niche. The cloud-based communications platform company added over 2,000 new active customer accounts last quarter alone -- bringing its total customers at the end of last year to 36,606 -- including new efforts with companies such as Capital One, Atlassian, UK-based Paymentsense, and Blue Cross Blue Shield. And that's not to mention that it serves industry juggernauts including Uber, Netflix, Facebook, and Amazon.com.
As a result, Twilio saw revenue rocket 60% year over year last quarter, to $82 million, while its GAAP net loss per share narrowed significantly to $0.15 from a net loss of $0.48 per share in the same year-ago period. (The company broke even on an adjusted basis, which excludes items such as stock-based compensation.) Twilio is, after all, primarily investing in its business right now to drive innovation and take as much market share as possible.
That doesn't mean Twilio isn't susceptible to disruption. Last month, for example, one analyst noted that ride-sharing specialist Lyft is considering Vonage's competing Nexmo platform as an alternative. But considering Twilio's enviable growth to date, it's par for the course to see late-comers try to grab a piece of pie in these early stages of growth.
In the end, though, Twilio stock has nearly doubled since its initial public offering at $15 per share last year, I think it's a winner that should keep on winning. And I'm convinced Twilio still offers upside for patient, long-term investors willing to step in now and watch its growth story continue to unfold.
A supercycle of potential
Rich Duprey (Apple): Samsung had a lot riding on the line when it launched its new Galaxy S8 smartphone, and while it delivered a new sleek, innovative device, it was no iPhone killer. There was no real "wow" factor with it, just a few incremental advancements, which means Apple's own new smartphone iteration later this year will be the real tech development.
And it's quite possible Apple is going to enjoy some huge numbers when the next iPhone hits. After a lackluster performance with upgrades over the past two years, some analysts think Apple could have a monster on its hands as iPhone 6 users look to upgrade their devices, leading the company into a "supercycle."
JPMorgan Chase analysts think the market underappreciates the sales Apple can generate, but "it depends on Apple delivering a good product." They're confident that is coming.
What they're not feeling so bullish about is Apple Services, the segment that generated the best growth of any for the tech giant. Services has become Apple's second-largest segment behind iPhones, generating more than $24 billion in sales last year. Revenue from the division surged 18% in the first quarter versus 5% growth from iPhones, but admittedly it's starting from a much smaller base. iPhones generated $54 billion in sales in the first quarter; services just $7 billion.
JPMorgan's analysts think that business is just a lot more challenging than any other part of Apple, and though it has some smart people working on it, they haven't shown they're capable just yet of capitalizing on the potential. But the potential is still there, so it could be a big winner in the years to come.
There may come a day when Apple is as well known for the services it sells to the users of its products as it is for the gadgets it sells, but right now Apple's fortunes rise and fall on the iPhone, and although its stock has already gained 25% so far in 2017, the returns may have their own supercycle in the near future.
A tech stock left for dead
Tim Green (Fitbit): To say that fitness-wearables company Fitbit is going through a rough patch would be an understatement. Sales tumbled during the crucial holiday season despite a slate of new products, with the company vastly overestimating demand. Layoffs and some executive shuffling followed, but the hole Fitbit has dug for itself is deep. The company expects revenue to drop by as much as 30% in 2017, and both non-GAAP net income and free cash flow are expected to turn negative.
The stock has plummeted, not surprisingly. Shares of Fitbit are now down nearly 90% from their all-time high set in 2015, and they're down about 56% over the past year. The market values Fitbit at just $1.3 billion, less than its expected sales in 2017. Fitbit stock deserves much of the pounding it has received, but a value case can still be made.
Fitbit's balance sheet contains $700 million of cash and no debt, meaning that the market is really only valuing Fitbit's business at about $600 million. Now, Fitbit does expect to lose as much as $100 million this year on a free cash flow basis, so this cash balance will likely decline. But the market is extremely pessimistic on Fitbit's prospects nonetheless. It won't take a roaring comeback for the stock to soar, only something modestly better than the worst-case scenario. Fitbit stock is risky, as things could just keep getting worse. But April is a good time to bet on the stock if you have any confidence at all in the company.