3 Top Tech Stocks to Buy in May

The coronavirus pandemic is wreaking havoc on the economy, but this is still a great time to invest in tech. That's because many technology companies thrive in this challenging environment due to their cutting-edge business models. As global lockdowns wind down and things slowly return to normal, some of these companies are poised to benefit from megatrends that have been accelerated by the coronavirus pandemic.

Here are three top tech stocks to buy in May. The first stock, Jumia (JMIA 0.49%), is a high-risk, high-reward bet on e-commerce. The other two, Snap (SNAP 6.70%) and Facebook (META 1.54%), are bets on the surging monetization of social media. All three stocks are good buys in May because they post rapid, coronavirus-resistant top-line growth that will last over the long term.

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1. Jumia

Africa isn't the first place you think of when you think of tech investing, but companies like Jumia hope to change that. Jumia operates an Africa-focused e-commerce platform that is also expanding into payment processing and other fintech services. Africa's e-commerce market is projected to grow at a CAGR of 14.2% until 2024, and the continent's fintech sector has been the site of significant venture capital investment and M&A interest in recent years.

Jumia is a high-risk, high-reward investment. Its first-quarter earnings report on May 13th will be an important moment for the company because it will reflect the full effects of the coronavirus pandemic on the business -- both positive and negative.

Investors should expect Jumia's core e-commerce revenue to get a boost from coronavirus-related lockdowns in its major markets like Nigeria, Egypt, and South Africa. But the company may suffer from weaker margins due to an increase in coronavirus-related expenses. While Jumia's margins are under pressure, this is a normal situation for a growth company that has not yet achieved profitability.

Jumia's revenue grew 24% from 129.1 million euros ($139.7 million) to 160.4 million euros ($173.6 million) in 2019. But the company lost 227.1 million euros ( $245.8 million) because of its high fulfillment costs. Management aims to boost margins by divesting from less profitable markets and focusing on new growth drivers like integrated marketing and advertising for vendors on the platform.

2. Snap

While Snap has lost some of its hype to Chinese competitor Tik Tok, the social media company remains a top tech stock to buy in May. Snap reported better-than-expected earnings on April 21st, and the company is set to continue outperforming the market due to its rapid revenue growth and potential for increased monetization in the U.S. and other countries.

Snap's first-quarter results were a blowout. The company's quarterly revenue grew 44% from $320 million to $462 million, while global Average Revenue per User (ARPU) jumped 20%, from $1.68 to $2.02. The social media app added around 11 million new users in the quarter as people looked for ways to entertain themselves amid the coronavirus lockdowns.

While Snap left the first quarter on a strong footing, the good performance should continue -- even as the coronavirus pandemic winds down. That's because Snap is at the early stages of monetizing its international users, and this will take it closer to profitability. The company reported a negative 18% EBITDA (earnings before interest, taxes, depreciation, and amortization) margin, which is up from negative 39% in the previous quarter. 

Snap's North American ARPU is $3.57, while the European and the "Rest of World" ARPUs are just $1.09 and $1.00, respectively. The international advertising market is a massive opportunity for Snapchat to monetize its platform, and it is taking steps to achieve this goal. The company has launched ROAS bidding to allow advertisers to pick ad placements based on their desired ROI, and it has launched Lens Web Builder, a platform to help advertisers create augmented reality campaigns. Both of these new strategies will help Snap boost ARPUs and margins going forward, and the stock looks set to outperform the wider market.

3. Facebook

Since its IPO in 2012, Facebook has been the most dominant social media company in the world. And despite COVID-19 battering the global economy, Facebook's share price has held up well. The stock is up 3.46% year to date, compared to a 9% decline in the S&P 500 over that same period. The company is poised to outperform the market over the long term due to its robust business model and room to heavily monetize its ARPU outside the U.S.

Ending on March 31, 2020, Facebook's first-quarter results show that the company held up well in the face of coronavirus-related challenges in the economy. Revenue increased by 18%, from $15.08 billion to $17.74 billion, while total costs and expenses remained virtually flat, increasing by just 0.7% quarter over quarter. Most notably, General and Administrative expenses dropped by 61% from $4.06 billion to $1.58 billion, while Research and Development increased from $2.86 billion to $4.02 billion.

The trend shows that Facebook's business model is poised to deliver rapid revenue growth while costs and expenses decline or stay flat. This will lead to soaring margins and more cash to plow into research and development to maintain an edge over competitors.

Facebook's international business also provides an opportunity for rapid, margin-enhancing growth. Facebook's North American ARPU stands at $34.18, compared to an average of just $6.95 worldwide and just $3.06 in the Asia-Pacific region. The company can generate massive top-line growth just by monetizing its international users to the same level as its North American users. And that's why the stock is set to continue outperforming the wider market over the long term.

All in all, these three companies are great buys in May because of their strong business models and ability to withstand coronavirus-related challenges in the economy.