Mr. Market hasn't been kind to tech stocks. It's been especially brutal for those investors holding high-valued cloud stocks. Many of these quality companies are down 40% or more with little to no news. This gives savvy investors a chance to pick up some gems at discounted prices. But it's not easy to tell which stocks could bounce back as the winds of the markets change.
We asked three longtime investors and Fool contributors to highlight their favorite cloud stock that has sold off 40% or more. They came up with Twilio (TWLO -0.73%), MongoDB (MDB -2.02%), and Monday.com (MNDY -1.68%).
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Twilio: The sell-off could make buyers want to link up with this cloud stock
Will Healy (Twilio): Twilio has lost more than 60% of its value since reaching its all-time high last February. Despite that drop, it continues to lead the way as a communications platform-as-a-service (CPaaS) company. Its technology powers communications and interactions that connect companies with customers. Since its technology runs the apps of companies such as DoorDash, Uber Technologies, and Zendesk, millions of American consumers have interacted with Twilio without knowing it.
Twilio is far from the only CPaaS service provider. Nonetheless, it continues to widen its advantage through product improvements. One new offering was Twilio Flex, a client contact center, saving clients from having to build such a system from scratch. More recently, it also partnered with Teleperformance, a provider of digital services for businesses, to improve and personalize customer engagement.
Despite these benefits, Twilio stock has frustrated investors in some respects. It reported revenue of $2 billion in the first nine months of 2021, an increase of 65% compared with the first nine months of 2020. Still, operating expenses grew by 73% over the same period. This contributed to a loss for the first three quarters of 2021 that amounted to $659 million, a 111% increase compared with the same period in 2020.
Twilio will release its fourth-quarter and full-year 2021 earnings on Feb. 9. The company previously forecast Q4 revenue between $760 million and $770 million. This would amount to a gain of 40% year over year at the midpoint. The company said without the added "political traffic" from 2020, the growth would have been 45% to 47%, but that still represents a slowdown compared with previous quarters.
However, its growth remains robust as it seeks to add customers and improve its product. Also, the drop in the stock price takes the company's price-to-sales ratio to 12, its lowest level since the beginning of the pandemic. With its relatively low multiple, strong revenue growth, and improved offerings, the company looks increasingly ready to bounce back from its massive decline.
Image source: Getty Images.
MongoDB: The next-gen database
Danny Vena (MongoDB): When it was first introduced, the ability of the database to arrange information into rows and columns made it a groundbreaking way to store, organize, and search data. However, a lot has changed in the 40 years since the structured query language (SQL) database became the industry standard.
These days, not everything fits neatly into the rows and columns of yesteryear. That's where MongoDB comes in. The company offers a cloud-native solution that stores, arranges, and searches electronic information and data of all types, including social media posts, photos, audio, videos, and even full documents -- as well as providing the aforementioned rows and columns.
MongoDB attracts developers with a free version of its flagship database, which has been downloaded more than 155 million times since it was introduced in 2009, and over 65 million times in 2020 alone.
Once they experience the ease and utility of its database tools, many developers want the full experience, signing up for Atlas, MongoDB's cloud-centric, fully managed, database-as-a-service product.
The company's customer list reads like a who's who of the tech elite, including Adobe, Alphabet, and Cisco Systems, to name just a few.
Like many companies, MongoDB experienced a temporary slowdown during the pandemic, but that's in the rearview mirror. For the first nine months of fiscal 2022 (ended Oct. 31, 2021), revenue is up 45% year over year, as are subscription sales, giving the company an enviable continuing revenue stream.
That's not all. While revenue accelerated 50% in the third quarter, Atlas adoption surged 84%, now accounting for 58% of its total third-quarter revenue -- an impressive feat for a product that didn't even exist six years ago.
A rapidly increasing customer base is driving its growth. MongoDB added more than 2,000 customers during the third quarter, bringing the total customer count to 31,000, up 37% year over year. Atlas customers grew even faster to 29,500, up 40%. Those contributing at least $100,000 in annual recurring revenue (ARR) climbed to 1,201, up 34%. Finally, the company's net AR expansion rate, which tracks the additional spending by existing customers, remained above 120%, as it has in each and every quarter going back more than three years.
The digital transformation has only just begun and the data that needs to be stored will continue to grow exponentially. The database software market topped out at $71 billion in 2020, and management estimates it will grow to $97 billion by 2023. MongoDB's revenue topped out at $590 million last year, helping illustrate the magnitude of its remaining opportunity.
Finally, investors are getting all this growth at a significant discount, with MongoDB stock currently down 40% from recent highs. With a significant opportunity and consistent execution, MongoDB is a stock I would buy without hesitation.
Image source: Monday.com.
Monday.com: Software building blocks for teams
Brian Withers (Monday.com): The first day of the workweek doesn't get a lot of love. There aren't many who enjoy transitioning from the weekend back to the daily grind. But Monday.com knows this and has even named its software platform and its company after this day. The software's goal is to help make starting the work week a little better. Its software platform has been built with no-code building blocks that can be put together to help create customer relationship management software, project management tools, or even a human resources management platform. It turns out this software, dubbed WorkOS, is really catching on.
When I covered this company in December, I highlighted the tremendous results from the most recent quarter. Revenue was up 95% year over year, large customers grew 231% from the last Q3, and net dollar retention was a solid 115%. The company reported these results on Nov. 3, 2021, and hasn't yet set a date yet for its Q4 earnings, but that should be in early to mid-February. The company is firing on all cylinders, but its stock has gotten caught up in the tech stock sell-off. Shares are down 37% from when the article was published on Dec. 12, and down 55% from its high earlier that month. Investors should note, this sell-off isn't based on any news from the company.
Even at the reduced price, Monday.com shares are still highly valued. It's not profitable and the price-to-sales ratio is a hearty 33. This is an expensive price to pay for a stock, but the company has a massive market and the ability to capture a large portion of it. Management estimates its total addressable market to be $56 billion for all of its use cases. That puts its share of the market at less than 1%. Its solid growth numbers, an annual compound annual growth rate of 124% from 2018 to 2020, prove that this company could be a huge winner for customers and shareholders over the next five years. Investors with an eye toward high-growth software businesses should love having Monday.com in their portfolio every single day of the week.
