Explosive, high-growth stocks have been hated by the stock market lately. Most are down significantly from their highs, and it's time to take advantage of these sale prices.
Three stocks with massive upside potential are Crowdstrike (CRWD +1.62%), The Trade Desk (TTD 1.96%), and Twilio (TWLO 0.66%). Each has both explosive growth and exciting 2022 prospects. Additionally, all are more than 30% below their all-time highs, giving investors a chance to buy at a bargain price.
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1. Crowdstrike
Crowdstrike's mission is simple: "to stop breaches." To achieve that, Crowdstrike created a cloud-native security platform securing network endpoints like laptops and phones. Its software can be used by employees everywhere, not just in the office. Many cybersecurity companies exist, but Crowdstrike separates itself from the field with its threat graph. This competitive advantage uses artificial intelligence (AI) to gather data from other attacks across all of its customers and then use that information to prevent attacks locally.
Businesses have rapidly adopted Crowdstrike's technology. Crowdstrike's revenue increased 63% to $380 million during the third quarter by adding over 1,600 net new customers. This brought its annual recurring revenue (ARR) up to $1.5 billion among more than 14,000 customers. While unprofitable now, more than half of Crowdstrike's operating expenses are sales and marketing costs, showcasing Crowdstrike's willingness to capture every available customer. Should management decide it is pleased with the number of customers and wants to transition its focus to prioritizing profitability, Crowdstrike could slash its marketing spend and turn a profit.
Crowdstrike isn't resting on its laurels. It recently opened up a new market by acquiring SecureCircle, extending Crowdstrike's endpoint defense capabilities to include data. Now employees can securely access software-as-a-service (SaaS) programs with large data sets. Management provided fourth-quarter estimates that would indicate revenue growth of 55% at the midpoint. The future looks bright for Crowdstrike, as it projects a $116 billion market opportunity in 2025 with its current and future offerings.
2. The Trade Desk
Advertisements are everywhere. A fine line exists between annoying ads and useful, targeted ones. The Trade Desk's demand-side platform matches advertisers with different opportunities across the internet, ensuring ads reach their intended audiences. Companies can even link their advertisement campaigns to certain business objectives to determine if they are having a measurable effect.
Many companies cut back on their advertisement spending during 2020 because of the uncertainty caused by the pandemic, but it came roaring back in 2021. The Trade Desk benefited from this trend and saw its revenue grow 39% to $301 million during Q3. Over the last nine months, its revenue has been up an impressive 55%. Unlike the other two stocks, The Trade Desk is profitable and sported a nearly 20% profit margin.
The Trade Desk sees a huge market opportunity in connected TV advertising. Inside the U.S., more than 87 million households are potential advertisement targets and represent a significant improvement over linear TV advertising. With tracking cookies going away, The Trade Desk's Unified ID 2.0 (UID2) solution respects user privacy while maintaining relevant advertising information. Customers have even found UID2 works better than cookies. The Trade Desk is ushering in a new advertising age and improving business outcomes along the way.
3. Twilio
Communicating with customers is key for businesses that want to maintain them. Twilio enables this by providing the tools necessary to interact with customers through email, text, or video. The uses for Twilio's messaging system are vast -- it can be used for marketing, conversations, user verification, or even mass alerts. Chances are that if a business has a desire to communicate with its clientele in a certain manner, Twilio can make it happen.
Twilio is a much larger company than the previous two, as its Q3 revenue was $740 million -- more than The Trade Desk and Crowdstrike combined. Its revenue grew 65%, but its organic revenue grew much slower at 38% once the contribution from its acquisitions made after Nov. 1, 2020 -- Segment and ZipWhip -- and fees imposed by U.S. carriers are removed. Organic revenue gives investors insight into how Twilio's core business is growing, without additional tailwinds. Its customers spent 31 cents more for each dollar spent last quarter, showcasing Twilio's expansion potential.
Management is excited about Twilio's growth prospects, as they predicted organic growth of at least 30% over the next three years during its Q3 earnings call. Couple that with the multiple acquisitions Twilio has made, and its pursuit of connecting businesses with customers through all avenues of communication is on track.
One common Twilio criticism is its serial unprofitability. Twilio spends heavily on research and development as well as sales and marketing. As more customers come on board due to technological innovations or sales success, revenue growth will eventually allow Twilio to turn a profit, as long as expenses don't outpace the sales revenue.
During the last few months, each has seen their price-to-sales multiples decrease.
CRWD PS Ratio data by YCharts
Twilio's valuation is quite a bit lower than Crowdstrike's and The Trade Desk's because its gross margin is only 51%, whereas the others are 75% and 81%, respectively. If all three become profitable, Twilio will likely generate fewer profits on a per-dollar basis because their product costs more than the other two. Regardless, these three companies have not seen their multiples fall below pre-pandemic levels. The growth that the pandemic provided each business has created a hefty tailwind, and they may never return to that lower threshold.
All three companies have expansion areas identified and are working to capture the market. The explosive revenue growth indicates current business execution as well. While past success is not a future indicator, it's the best tool investors have. With Crowdstrike, The Trade Desk, and Twilio, growth investors can be confident they are buying three winners.
