Since the onset of the COVID-19 pandemic, companies that are well positioned with digital tools or that deliver mainly online services have generally performed better than brick-and-mortar ones. Some have even thrived during the downturn because of a sharp surge in online activity caused by border closures and stay-at-home orders. Popular sectors that received a boost include cloud computing, social media, online payments, and software-as-a-service (SaaS).
Many of the companies that benefited from telecommuting and the online shift can still do well next year as these trends should persist. Human habits have been permanently altered by the convenience and ease of working and communicating online, and this practice looks here to stay. These tailwinds should sustain into 2022 and help these businesses to grow both their top and bottom lines.
Here are three stocks with attractive characteristics that could perform spectacularly in the New Year.
Image source: Getty Images.
Adobe
Adobe (ADBE 0.40%) is well known for its portable document format (PDF) that is widely used by both individuals and businesses. The SaaS company has displayed steady growth in subscription revenue from its fiscal year 2018 to fiscal year 2020. Over this period, subscription revenue increased from $7.6 billion to $11.6 billion and its proportion of total revenue has also jumped from 84.2% to 90.3%. The momentum has carried into 2021 with revenue for the first nine months of this year rising by 23.6% year over year to $11.7 billion. Subscription revenue took up 92.2% of total revenue for the period, underscoring the increasing importance of subscription sales in driving Adobe's total revenue. Ultimately, net income climbed by 19.2% year over year to $3.6 billion.
Adobe's main cloud offerings, namely digital cloud and document cloud, continue to attract customers who use its myriad tools to improve their workflow and collaborate. The company's electronic signature feature and expansive range of digital pictures, videos, and audio files also endear it to companies that rely on these features for agreement authentication and design work, respectively. Adobe also taps artificial intelligence with Adobe Sensei, a tool that integrates with its Experience Cloud service to enable better marketing outcomes for customers.
With a strong brand name and continuous and innovative enhancements to its slate of cloud services, Adobe should continue to garner more clients and grow its subscription base further. With a stronger base of customers and ongoing digital adoption, coupled with its robust software-as-a-service model of landing and expanding, Adobe stands a great chance of doubling next year.
MercadoLibre
MercadoLibre (MELI 0.87%) is one of the largest e-commerce and online payment platforms in Latin America. The company was already growing steadily before the pandemic broke out but saw its growth accelerate during the crisis. In 2020, gross merchandise volume (GMV) and total payment volume (TPV) jumped by 49.5% and 75.9% year over year to $20.9 billion and $49.8 billion, respectively. These numbers indicated the popularity of MercadoLibre's platforms as more customers went online and used its services to order goods and make online payments.
The latest quarter's earnings demonstrate that growth shows no signs of abating. GMV jumped by 24% year over year to $7.3 billion while TPV surged by 44% year over year to $20.9 billion. Revenue and net income also chalked up an impressive performance in tandem with the increase in these operating metrics. Net revenue for the first nine months of 2021 surged by 86.6% year over year to $4.9 billion while net income more than doubled from $152.8 million to $417.4 million.
MercadoLibre has reported a growing user base and higher levels of engagement, while satisfaction rates are also increasing as the company increases its product assortment and improves its shipping service levels. Now, MercadoLibre is working with venture capital firm Kaszek to create a special purpose acquisition company (SPAC) that can find a suitable Latin American technology company to go public. It's one of the many ways that the company intends to diversify its sources of investments and revenue streams to prepare itself for the future.
As the company solidifies its position as the top e-commerce firm in Latin America, it will generate a strong network effect that will draw more vendors and customers to it, thereby further increasing its user base. The acceleration in its GMV and TPV should supercharge its revenue and earnings, giving Mercadolibre a high probability of doubling in 2022.
Alphabet
Alphabet (GOOGL 1.42%) (GOOG 1.43%) is the owner of the most popular search engine in the world, Google, and offers a plethora of services including YouTube, Google Cloud, and Google Maps. The technology behemoth was already growing steadily before the pandemic, with total revenue increasing from $136.8 billion in 2018 to $182.5 billion in 2020. Net income improved by 17.3% year over year in 2020.
The pandemic caused a sharp surge in Alphabet's revenue for the third quarter. Revenue jumped by 41% year over year to $65.1 billion while net income surged by 68.4% year over year. The company saw broad-based revenue growth across all its services as companies and individuals tapped its network and cloud services.
Alphabet continues to deepen its product offerings, with its cybersecurity products seeing strong demand as more businesses and schools adopt hybrid work. Its powerful analytics and artificial intelligence tools are being used by a multitude of clients who incorporate them into their product and service offerings, driving deeper customer engagement and leading to more successful marketing campaigns.
These services are just a snapshot of what Alphabet offers, and as digitalization continues to reach new geographies, the company should see its search engine being used more often, thereby attracting higher advertising revenue. Although Alphabet is moving close to becoming a $2 trillion company, history shows that it had doubled once, from December 2019 to December 2021, and I believe it has the chance to do so again.
With tailwinds from the pandemic and a surge in digital adoption, Alphabet has stunned many with its rapid top and bottom-line growth. This may just be the tip of the iceberg as its search engine and cloud service penetrate more deeply into more industries and new countries, cementing its dominance in the new normal and jumping ahead of the competition. And even if it does not double, I think Alphabet's stock should at least provide an impressive double-digit percentage gain as earnings catapult ahead.
