The stock market has been surprisingly resilient this year, despite a worldwide pandemic, a U.S. recession, and a tumultuous presidential election. As of this writing, the S&P 500 has gained about 8% year to date.
But many companies, and particularly tech companies, have seen their share prices skyrocket far above the broader market's gains this year. If you're looking for some great technology companies that are doing well now -- and will likely beat the market for years to come -- a few Motley Fool contributors think you should consider buying DocuSign (DOCU 0.10%), Shopify (SHOP -2.37%), and Amazon (AMZN -1.65%). Here's why.
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DocuSign has a big opportunity with its big customers
Brian Withers (DocuSign): Customers large and small have been flocking to DocuSign's e-signature platform since the coronavirus pushed businesses to adopt remote working arrangements. From the end of its last fiscal year on Jan. 31, 2020, through the end of its second quarter on July 31, 2020, the company added an amazing 160,000 customers, a 27% increase. Even more exciting is that 24,000 of these were large enterprise and commercial customers that make up a significant portion of its revenue (around 88%). These customers grew 32% over the period to reach the 99,000 mark, which will provide a significant opportunity for this software-as-a-service specialist over the next few years.
When a large customer signs a contract with DocuSign, it's usually for a one- or three-year period. The contract pricing depends on how many "envelopes" (documents routed for signatures) are estimated to be used, the number of employees served, and the software products the customer is using. Once the contract is in place with that customer, DocuSign's sales team monitors the usage. If the customer is on pace to exceed its contracted volume significantly, it's an opportunity for the sales team to reach out and renew the contract early to increase pricing to better reflect what's actually happening. There isn't an automatic overage or limit to the number of envelopes, but it gives sales an opening to dialog with the customer on how things are going and possibly introduce them to its other products including its end-to-end contract management software suite, Agreement Cloud.
Even though it hasn't shared specific data on how often early renewals occur, it's likely that it's happening a lot. In the most recent earnings call, CFO Mike Sheridan said "Strong e-signature expansions and upsells into our existing customer base led to a record dollar net retention rate of 120% in the quarter." Additional evidence is its 41% year-over-year increase in customers with annual contract values exceeding $300,000. Finally, billings, a measure of revenue plus the change in contract liabilities, increased faster (61% year over year) than revenue (45%) in the most recent quarter. This means the massive increase in billings is likely due to large customers renewing their contracts at higher values.
It will take less than $1,000 to get you started with four shares of DocuSign stock today. Why buy now? The company won't release its fiscal 2021 third-quarter earnings until early December, giving you time to get in on this long-term winner before the upcoming management update. I won't predict what the results will be, but since the coronavirus started, the company's top line has exceeded management estimates for the last two quarters. They might just do it again.
Shopify: Buy this stock while it's still on sale
Danny Vena (Shopify): When it comes to overall market movements, sometimes a good stock gets caught in a downdraft, losing a big chunk of its value on no company-specific news. This phenomenon happened recently, when technology stocks overall were given a good thrashing. At the same time, investors "threw the baby out with the bathwater" as the saying goes, and Shopify stock declined about 15% from recent highs. While it's recovered somewhat in recent days, investors can still get shares of the world's foremost e-commerce platform at roughly a 10% discount.
You might be tempted to think that its recent earnings report had some hand in the stock's recent haircut, but nothing could be further from the truth.
Shopify reported third-quarter results that sailed past expectations and its top- and bottom-line growth was nothing short of enviable. Revenue of $767 million grew 96% year over year, eclipsing analysts' consensus estimates of roughly $658 million. Profits were similarly robust, with adjusted earnings per share of $1.13 -- up from a loss of $0.29 in the prior-year quarter -- and more than double the $0.52 expected by analysts.
At the same time, subscriptions revenue climbed 48% year over year, while merchant solutions soared 132%, driven by gross merchandise volume (GMV) that jumped 109%. Monthly recurring revenue (MRR) increased 47%, giving the company a growing foundation of continuing business.
Shopify is seeking to capitalize on the current uncertainty in the economic environment by rolling out Shop Pay Installments, a buy now, pay later option that lets merchants offer their customers flexible financing.
The company is also working diligently to build out its Shopify Fulfillment Network. Recent developments include creating software that connects the network, providing enhancements to the support functions in its merchant-facing app, and adding partner nodes. There's strong demand for the service heading into the holidays, but Shopify continues to roll out its services at a measured pace to ensure quality.
Shopify continues its international expansion, increasing the availability of Shopify Payments to 17 countries. Its shipping solution also continues to gain converts as 51% of eligible merchants in the U.S. and Canada used Shopify Shipping, up from 45% in the prior-year quarter.
E-commerce continues to grow by leaps and bounds and Shopify stands at the crossroads of this large and growing opportunity. Given the recent decline, this seems like an excellent opportunity to buy shares of Shopify at a discount -- before the market comes to its senses.
Amazon isn't slowing down anytime soon
Chris Neiger (Amazon): If you've got $3,000 to invest right now, that will almost get you one share of Amazon's stock, which will set you back about $3,273. But don't fret if you don't have an extra $300 or so, you can always buy fractional shares of the stock -- and now may be one of the best times to invest in Amazon.
The company is just coming off a stellar quarter in which sales jumped 37% to $96.1 billion, which outpaced the Wall Street consensus estimate of $92.7 billion. And the company's earnings were even more impressive, reaching $12.37 per share -- compared to just $4.23 in the year-ago quarter -- and smashing analysts' consensus estimate of $7.41.
Amazon has grown during the pandemic as people turned to online shopping to buy everything from home office equipment to household necessities. This helped Amazon's North American sales spike 39% to $59.4 billion. The company's e-commerce platform has been in such high demand that Amazon has hired 400,000 employees this year, while many companies are laying off workers.
Aside from e-commerce, the company's cloud computing business, Amazon Web Services (AWS), increased its sales by 29% year over year to $11.6 billion. Amazon is leading the public cloud computing market with 33% market share right now, and with an operating margin of 30.5%, AWS is a lucrative business that's tapping into a $364 public cloud computing market (by 2022).
So why is Amazon worth the investment right now? Because despite the company's amazing third-quarter results, the stock has dropped from its 52-week high and is trading lower than it did before it released its latest results. Investors looking for a fantastic tech stock that continues to beat expectations and will continue to beat the market for years to come should consider buying Amazon now.
