For investors, 2020 has been something of a paradox. America is working through two parallel tragedies. The first is a disease that has claimed nearly 300,000 American lives as of this writing. The second is financial: In the second quarter, real GDP fell by a third. , the worst annual decline since the Bureau of Labor Statistics started keeping records in 1947. Today, the U.S. unemployment rate hovers near 7%. Despite that, the stock market continues to advance, with major indexes now sitting near all-time highs.
While it can be argued that the market's rise is due to extraordinary efforts by the Federal Reserve, and by earlier fiscal support from Congress, there's more to it than simply helicopter money and "YOLO" day traders. The pandemic has pushed the technology adoption curve forward three to five years and shown that critical tasks can be fully performed online.
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Look for this to continue, as cost savings and increased collaboration will pay investors for years to come. That's why stocks that have flourished during COVID-19, like Okta (OKTA 1.31%), DocuSign (DOCU 0.25%) and Magnite (MGNI 2.72%), have further room to run.
The work-from-anywhere world is here to stay
If there's been anything positive to come from COVID-19, it's that the pandemic has highlighted the resiliency of American business. Nowhere has this been more on display than in corporate America, where millions of employees went from office workers to a remote workforce in a matter of weeks.
Although technology companies like Facebook, Twitter, and Square have been the leaders in the work-from-anywhere movement, the quick adoption by legacy industries and government employees has been notable. However, a remote workforce cannot operate effectively without identity, agreement, and access management, which is why SaaS stocks like Okta and DocuSign will continue to grow post-COVID.
Both reported strong quarters. Okta reported revenue growth of 42% year over year in its recently reported third quarter, but what got investors excited was the 53% growth of remaining performance obligations (RPO) -- contracted revenue expected to be recognized over the next 12 months -- along with meaningful new customers from the heavily regulated financial sector.
DocuSign's third quarter was even stronger, reporting 53% top-line growth. Billings, a measurement of future revenue, increased by 63%. For both stocks, the fact that RPO and billings are increasing at a higher rate than revenue shows businesses are looking at these solutions for more than simply the next few months.
An unconventional play on a post-COVID world
Programmatic sell-side advertising platform Magnite might be an unconventional play in this space, but it's quickly becoming one of my favorite investments. Born from a merger-of-equals of The Rubicon Project and Telaria, the company works with digital publishers to sell advertising inventory to brands. The company has been on a tear this year, up 136%. In-the-know investors are starting to pay attention to its leadership in the connected TV (CTV) space, as streaming hours have exploded during COVID-19. In the third quarter, revenue attributable to CTV grew 50% year on year.
While I expect a long runway for growth from CTV, investors are still overlooking the opportunity in display and mobile advertising. Recently, Apple ended support for third-party cookies, and Alphabet announced it will pull the plug in 2022. Advertisers scrambled to find a way to identify web traffic to maintain effective targeting and root out ad fraud. Led by The Trade Desk and supported by Magnite, the nascent industry standard to address the post-third-party-cookie world is Unified ID 2.0 (UID 2.0).
Under UID 2.0, the data is collected by the publisher instead of by a third party, which immediately increases the publisher's value in the advertising ecosystem. Magnite supports advertising by providing tools that allow the publisher to best position its ad space to take advantage of this data and increase its cost per 1000 impressions (CPM). As third-party cookies go away, look for Magnite to grow its footprint in the digital advertising space and for the stock to follow as Wall Street catches on.
