Technological innovation continues to influence how we live, from how we watch television to remote work. A lot has changed globally over the past few decades, and long-term stock winners like Amazon and Netflix have used these tailwinds to reach great heights on the market.
Looking ahead for the next big winners, Coupang (CPNG -2.02%) and Autodesk (ADSK 0.10%) are two top technology stocks to buy for the long haul as they ride their own tides of change.
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Coupang
Coupang has built a gigantic e-commerce and retail operation in South Korea with a goal to "wow each customer" who places an order using its app. The company owns an end-to-end delivery and logistics network, giving it an advantage over its e-commerce peers in South Korea by providing blazing-fast shipping. At the time of its IPO last year, nearly 100% of Coupang's orders had next-day delivery or faster.
With more efficient service, Coupang has been able to attract millions of Koreans to become active customers on its marketplace. At the end of the third quarter, it had 16.8 million active customers, up 20% year over year (its 15th consecutive quarter of at least 20% growth). Total revenue increased 48% to $4.6 billion, driven by that customer growth as well as 23% higher revenue per active customer.
Couang has increased customer spending by adding services to its online marketplace and expanding its delivery infrastructure. These include Coupang Eats (a food delivery service that was one of the top two downloaded apps in South Korea last year) and Rocket Fresh (same-day grocery delivery).
All these services have required major capital investments with eight million square feet of infrastructure space added and $506 million in capital expenditures through the first nine months of this year. These investments are costly, but they should insulate Coupang from competition that cannot match the scale of its end-to-end delivery network.
With a market cap of about $38 billion as of this writing and an impressive track record of top-line growth, Coupang could be a great technology stock to buy now and hold for the long haul. Plus, with its price-to-sales valuation falling to just 2.2, the lowest level in the company's brief history on the market, the stock trades at a bargain valuation relative to its growth potential.
Autodesk
Unlike Coupang, which is trying to build out a technological advantage that combines the physical and digital worlds, Autodesk solely operates in the software realm. However, its customers are the designers and builders of a lot of the physical infrastructure and real estate around the globe.
At its core, Autodesk provides software for people and corporations that build things. This includes designers and architects, who use its Revit and AutoCAD products; engineers of all types, who use software like Fusion 360; and increasingly, construction workers, who employ the Autodesk Construction Cloud. The company also has a small media and entertainment division that sells 3D animation and visual effects software.
Autodesk is riding a few major trends around the world. The first is building information modeling (BIM), a new standard of keeping all relevant information for a building (among other things) in a software program. Revit, Autodesk's biggest product, is the clear leader in this category. The BIM industry is expected to grow at close to 4% through 2028, which will fuel sales for Revit.
The company is also benefiting from the growth of digitization and cloud collaboration in the engineering, construction, and infrastructure markets. For example, with the $1.2 trillion infrastructure bill recently passed in the United States, many of the dollars being allocated will go to industries that Autodesk serves like the builders of roads, bridges, and water systems. This flow of capital will hopefully provide a strong tailwind for Autodesk to grow its customer base.
ADSK free cash flow per share. Data by YCharts. TTM = trailing 12 months.
Autodesk is not a cheap stock with a current market cap of $56 billion and a price-to-sales ratio of 13.4 based on its trailing-12-month numbers. But the company has impressive margins and is guiding for $2.4 billion in free cash flow (FCF) for the next fiscal year (starting in Feb. 2022) with double-digit FCF growth through 2026. If the company can hit this target, that would give it a forward price-to-FCF of 23.5, which is right around the market average now.
With such strong tailwinds coming from BIM and the digitization of the industries it serves, Autodesk has a clear path to growing steadily over the next decade, making it a top stock to own for the long term.
