The market is moving higher in August, but not every stock is heating up along with it. Netflix (NFLX -0.58%), Twilio (TWLO -0.75%), and Dropbox (DBX -0.53%) are some of the more surprising names that have been sitting out this month's rally.
All three are trading lower in August as of the close of trading Wednesday, and that doesn't seem fair. Here's why they're strong candidates to head higher soon.
The pandemic has certainly given us a lot more time to stream video than usual, and given that it's the undisputed top dog in this niche, that positions Netflix perfectly. The company had nearly 193 million paid subscribers worldwide at the end of June, 27% more than it had on its rolls a year earlier.
It's true that the guidance Netflix offered in its mid-July earnings report wasn't the best. Management forecast it would add just 2.5 million net subscribers in the current quarter. However, the company also landed well ahead of its mid-April guidance numbers for subscribers, revenue, and adjusted earnings. With the pandemic proving to be a stubborn beast, multiplex operators heading into a challenging ramp-up of restarting their operations this month, and traditional cable and broadcast networks facing difficulties producing new content, how can you bet against Netflix?
Twilio is another platform that seems to have only gotten more useful during the pandemic. The need for in-app communication solutions has never been stronger with so many people using their smartphones to get stuff done.
The second-quarter report it delivered earlier this month trounced analysts' expectations, with revenues up by 46%. It was also the second time in a row that Twilio delivered an adjusted profit when Wall Street pros had been braced for red ink.
Despite the blowout report, the stock still declined on five of the six subsequent trading days. Some of the factors behind the pullback are fair. The stock had nearly tripled year to date heading into the Aug. 4 financial update, and every hot investment needs to exhale every now and then. Twilio also took advantage of the buoyant price to raise $1.25 billion through a stock offering, and nobody likes dilution. Guidance for the current quarter calls for top-line growth in the 36% to 38% range, which would make this the company's fifth straight period of decelerating revenue growth. Its dollar-based net expansion rate also took a sequential dip.
However, all of those knocks on the company are being overblown. Twilio's 132% net expansion rate is still a mind-blowing metric that reflects how effective it is at getting its existing customers to spend more on the platform. Guidance actually topped what the prognosticators tracking the stock were expecting. Twilio took a few steps back after a lot of steps forward this year, but there's no reason to think it won't start moving in the right direction again this summer.
One of the low-key winners rocking it in the new normal is Dropbox. The ability to move large files around easily has never been more important than right now as tens of millions more of us are working from home or bouncing back and forth between the office and home to get work done.
The share price of Dropbox also buckled after it delivered a solid financial update that seemed to check off all of the bullish boxes. Revenue and earnings outpaced Wall Street's targets, and management boosted its full-year guidance. It did announce that its CFO is moving on, and while that's never a good look, it's only a red flag on rare occasions. With double-digit percentage revenue growth and more than 15 million paying users, this is another strong candidate to recover after a sluggish start to August.
Netflix, Twilio, and Dropbox aren't perfect, but they're doing a lot of things right this summer, even if their share prices aren't playing along this month. And they remain some of the market's more promising growth stocks.