Sometimes it takes a little digging to find a great opportunity. Investors who are willing to put in a little time to understand cloud software platforms Twilio (TWLO 0.23%), Okta (OKTA 0.33%), and Shopify (SHOP -0.46%) will be well rewarded. Let's look at why in-the-know investors love these behind-the-scenes operators that have become powerhouse growth stocks.
Twilio: Enabling digital communications
Twilio is a communications platform that allows software developers to embed digital messaging capabilities into a company's existing applications. Twilio makes it easy for software to generate an email to let you know about a new product, produce a text message saying your delivery is delayed, or initiate a phone call reminding you of your medical appointment.
Since it was founded in 2008, the company has built a $1.4 billion annual revenue run-rate business with over 200,000 customers around the globe. Even in the throws of the coronavirus, the company posted solid 42% year-over-year growth for its most recent quarter ending June 30, 2020. A majority of its revenue (76%) comes from usage-based fees for each message, which has been highly successful in driving growth. Once on the platform, customers spend more as they find more ways to utilize its powerful messaging tools. Last quarter, this increase in customer spend drove an impressive 132% dollar-based net expansion.
In addition to messaging, the company has expanded into video communications and contact center tools. With a HIPAA-certified platform, its video tools have been instrumental in helping healthcare software platforms implement online medical appointments. As for contact centers, these are catching on too. Last quarter, it landed 25 coronavirus contact tracing center deals for university, city, and state government customers.
But the best may be yet to come. It has tapped only around 2% of its $66 billion addressable market, giving this communication specialist plenty of room to grow.
Image source: Getty Images.
Okta: Identity management made easy
It's a challenge for companies to secure their network applications from hackers and still make it easy for its employees to log in. But Okta has created an identity management solution that does both. Employees use a single sign-on to access to a dashboard of all the applications they use on a daily basis. It provides information technology teams powerful tools to manage secure access to corporate applications for employees and business-critical external partners.
Okta was born in the cloud era and has grown tremendously with the popularity of cloud-based applications. Today it serves 8,950 customers and integrates with more than 6,500 software tools. Revenue expanded 46% year over year in its most recent quarter ending July 31, 2020. Net dollar retention hit a solid 121% and large customers with annual contract values of $100,000 or more grew at an impressive 38% year over year.
As more customers sign on and more applications become integrated on the platform, this cloud security service specialist extends its leadership position even more. With trailing-12-month revenue of $703 million, it's captured a tiny 1.3% of its massive $55 billion market. That's something in-the-know investors can really get excited about.
Shopify: The backbone of small business e-commerce
E-commerce stocks have been riding a huge wave of activity as consumers flock to online stores to provide everything from new furniture for the home office to everyday household goods. Since 2006, Shopify has provided entrepreneurs and small businesses an easy on-ramp to starting and running an online store. It's attracted more than 1 million merchants in 175 countries and surpassed Ebay in 2019 to take second place behind Amazon in online market share in the U.S.
Last quarter, which ended June 30, 2020, was Shopify's best quarter ever, achieving record revenue of $714 million (a 97% year-over-year gain). But equally important is the achievements of its customers. Last quarter, its merchants achieved the highest-ever platform sales of $30 billion and realized average sales gains per merchant across the board. Its customer-centric approach aligns the company's success with that of its merchants, creating a powerful incentive for management to focus on over the long term.
With e-commerce getting a coronavirus boost, consumer habits may forever be changed with the convenience and selection of online shopping, which will benefit Shopify for years to come.
Three winning opportunities
E-commerce, cloud software, and digital communications are powerful tailwinds for these three category leaders that are setting them up with a long runway of growth. In-the-know investors understand that winners keep on winning and these three behind-the-scenes cloud platforms have the momentum to continue to win over the long term. With recent pullbacks in the stocks, now may be a great time to get on board.
