As we roll into December, many investors are already looking at 2022 and wondering what stocks are positioned to deliver solid results in the coming year. 

We asked three experienced investors what stock they would buy now to outperform the market in 2022 (and beyond). They came back with Roku (ROKU 1.07%), Twilio (TWLO 1.51%), and Monday.com (MNDY 0.11%).

Individual doing financial analysis on laptop, pausing with head in hands thinking.

Image source: Getty Images.

Roku: There must be some misunderstanding

Danny Vena (Roku): Sometimes the biggest opportunities are the result of investor misunderstandings. Such is the case with Roku.

The company has created a powerful network effect that has resulted in a virtuous cycle. Roku has more than 10,000 streaming channels on its platform, offering the best of both paid subscription services and free ad-supported programming. Every niche service imaginable can be found there, providing something for every viewer. The sheer magnitude of choices has, in turn, attracted more than 56.4 million active accounts on Roku's platform. 

This cuts both ways. With tens of millions of active accounts (and multiple viewers per account), every streaming service that wants to reach its target audience and bulk up its viewer numbers must, of necessity, appear on Roku's platform.

Several high-profile dustups have suggested the strength of Roku's bargaining position. After months of negotiations, it recently reached a multi-year deal with Alphabet's Google that allows both YouTube and YouTube TV to continue streaming with Roku. 

The streaming pioneer has also faced down AT&T's HBO Max, waiting more than seven months for concessions before allowing the service on its platform. Fox Corp. faced a similar fate, caving when it appeared fans wouldn't be able to watch the Gridiron Classic in February. 

There's a common misconception that Roku makes most of its money selling set-top boxes and streaming dongles. The facts are far different.

First, Roku gets a cut of the subscription for each customer it attracts to a paid streaming service. Additionally, Roku contracts for 30% of all advertising space that appears on its platform, as payment for its services. It then uses its treasure trove of viewer data to inform its targeted advertising.

It also created the Roku operating system (OS) for smart TVs, which it licenses to television manufacturers. Roku handles the heavy lifting, providing continuous upgrades and state-of-the-art features, including voice controls -- which TV-makers get for a fraction of the cost of developing the technology in-house.

Finally, it developed The Roku Channel, which provides viewers with a library of top-shelf entertainment and far fewer commercials than network television. Roku keeps all the ad revenue from its homegrown streaming offering. These services make up Roku's platform segment, with the lion's share of its revenue coming from digital advertising -- and business is booming.

In the third quarter, total revenue growth of 51% year over year was impressive, but platform revenue grew 82%. At the same time, the gross profit margin for the platform segment climbed to 65% and has consistently stayed above 60%. This fueled Roku's profits, which surged more than fivefold.

The growth in both active accounts and streaming hours slowed this summer as pandemic-related restrictions began to phase out, with audiences choosing vacations and outdoor activities over viewing. Now that summer is over, Roku's impressive growth trajectory should resume.

Investor fears regarding the slowdown in demand sent Roku's stock tumbling. This gives savvy investors the opportunity to buy Roku shares at a nearly 50% discount. This sale won't last.

Woman looking at phone with overlay of connected icons representing connection to the internet.

Image source: Getty Images.

Twilio: Positioned for a comeback 

Will Healy (Twilio): After Twilio's performance in 2021, one might wonder why it holds the potential to outperform the market in 2022. Since peaking in February, the stock has lost almost 60% of its value as a slowing revenue growth rate in its core business and widening losses weighed on the company.

Despite its stock struggles, Twilio remains a fast-growing software-as-a-service (SaaS) company that fosters in-app communications for its clients. Companies such as DoorDash, eBay, and approximately 250,000 other customers depend on Twilio for messaging, voice, video, and email communications.  

The company also continues to expand through acquisition. Approximately one year ago, Twilio bought Segment.io (now known as Twilio Segment) for $3.2 billion for its customer data platform capabilities. Also, it purchased ZipWhip, a leader in toll-free messaging, for $850 million in cash and stock earlier this year.

With the help of such additions, the company reported Q3 revenue of $740 million, including a combined $76 million in revenue from Twilio Segment and ZipWhip. However, this figure has spawned meaningful bull vs. bear arguments on the stock. Investors did not take well to the company's 65% year-over-year revenue growth in Q3 when they found out that it would have reported only 38% revenue growth without Twilio Segment and ZipWhip.

Moreover, the company's year-over-year quarterly loss rose 92% to $224 million as a $15 million tax benefit failed to offset operating expenses that increased more rapidly than revenue. Additionally, while revenue forecasts of between $760 million and $770 million represent an approximate 40% increase in revenue, it means a significant slowdown from Q3's growth rate.

Nonetheless, Twilio's price-to-sales (P/S) ratio has fallen to 18. This is well below its 37 P/S ratio in February and takes the sales multiple to 2019 levels. Furthermore, the company reported a net expansion rate of 131%, a figure that does include contributions from Segment or ZipWhip. Hence, for every $1 that a current customer spent last year, they spent $1.31 on services this year. Between that rising customer spending and the significantly discounted stock price, Twilio could become a buying opportunity even if organic growth slows for a time.

Work colleagues collaborating in the office.

Image source: Getty Images.

Monday.com: Flexible software for a flexible workforce

Brian Withers (Monday.com): Monday.com started as a way to help teams build the software tools they need without a software developer. The platform uses no-code building blocks so that anyone can stand up a customer database, metrics tracking system, or collaborative project management tool. It turns out that this concept is winning customers hand over fist. Let's check in on the numbers from the latest quarterly earnings report.

Metric

Q3 2020

Q2 2021

Q3 2021 

QOQ change

YOY change

Revenue

$42.6 million

$70.6 million

$83.0 million

18%

95%

$50K ARR customers

185

470

613

30%

231%

Net dollar retention

N/A

111%

115%

+4%

N/A

Data source: Company earnings reports. QOQ = quarter over quarter. YOY = year over year. ARR = annual recurring revenue.

Top-line revenue in Q3 grew a staggering 95% year over year and was up 18% quarter over over. The number of large customers paying more than $50,000 in annual recurring revenue more than tripled to 613. Net dollar retention, a measure of how much individual customers are increasing spend, is trending up at 115%. What's even more impressive is that Monday.com's net dollar retention among customers with greater than 10 users was even higher at 130%.

The growth so far has been tremendous, but there's massive untapped potential too. The company estimates its market to be $56 billion when you add in all of the applications its software can address. Using a land-and-expand go-to-market strategy, the company depends on advertising to hook the first user and then the product's ease of use and powerful capabilities to expand to more users over time. Based on the growth and retention numbers, this strategy is working well.

Monday.com came public in June 2021 and the stock has shot up around 80% so far this year already. You might think you've missed the ride on this rocket ship, but with its powerful software and today's hybrid workforce, this collaboration software specialist has plenty of room to grow.

After looking into this software specialist, I was so impressed that I personally bought shares last month.