It's only February, but many investors might feel like they've seen enough volatility for an entire year. The tech-centric Nasdaq 100 index is down 11% year to date, with many individual technology stocks falling deep into bear market territory.
But redemption might be in the cards, with earnings season giving the broader market a lift after some impressive early results. A positive turn is most welcome in this month of Valentine's Day, and three Motley Fool contributors think Snap (SNAP 2.28%), Nu Holdings (NU 0.48%), and Netflix (NFLX 0.25%) are the stocks best placed to outperform.
A unique take on the metaverse
Anthony Di Pizio (Snap): The change in privacy rules by tech behemoths Apple and Alphabet was one of the largest stories of 2021 in social media circles. It allowed users to opt out of being tracked on their devices, which was a crucial method of gathering data for companies like Snap, in order to sell advertising to businesses. But after reporting its full-year 2021 results on Feb. 3, it was clear that the company had found alternative solutions.
Snap revealed record full-year revenue of $4.1 billion, and the fourth quarter was its first-ever profitable quarter based on generally accepted accounting principles (GAAP). The result sent the company's stock soaring 54%, from a low of $24.51 on Feb 3, to where it trades today. It's in stark contrast to Snap's direct competitor, Meta Platforms, which has been crushed since reporting its own results and informing the market that the privacy changes could cost it $10 billion during 2022.
Snap added 54 million users during 2021, taking its current total to an all-time high of 319 million. Analysts expect the company's growth to keep rolling in 2022, with revenue of $5.4 billion and a full-year profit of $0.53 per share, representing its first-ever positive yearly earnings result.
But investors have another reason to be excited. The company is building its own take on the metaverse, which involves combining the digital and physical worlds using augmented reality glasses it calls Spectacles. It's different from the immersive, fully-virtual world that companies like Meta are building, but Snap says its technology will foster human interaction and ultimately be better for its users' well-being. That's a great goal in an environment where social media companies are being grilled on the negative affects of their platforms.
Since the metaverse could be an $800 billion opportunity in 2024 by some estimates, Snap's unique approach could bear some major fruit. Now might be the time for investors to get involved, with a long-term view for the best results.
A new force in banking
Jamie Louko (Nu Holdings): This Latin American fintech company hasn't been given any love since it came public in December 2021. It has fallen 30% since then, but I think it is deserves some appreciation this Valentine's Day.
Just five banks in Brazil, Mexico, and Colombia control up to 85% of banking revenue in those countries, and this lack of competition has resulted in little innovation and poor customer service over the past decade. In Brazil, for example, there is an average of 1,400 complaints about these banks per 1 million people. Nu is trying to change this by bringing innovation to the banking sector in Latin America.
The company has built a one-stop shop for everything consumers might need -- including checking accounts and insurance products -- in Brazil, Mexico, and Columbia. More importantly, Nubank is completely digital, making it easy for its consumers to grow their financial presence. It is laser-focused on customer service as well: In Brazil, it received only 19% of the complaints per 1 million people that its banking competitors heard.
With its competitive advantages, Nu is helping drive financial adoption in Latin America. It currently has 48 million customers, and it is seeing average growth of 2.1 million new users per month. Over 5 million of its users are first-time banking customers, so Nu is becoming the home of the next generation of financial adoption in this region.
This has resulted in stellar financial performance. The company has grown its customer count by 110% annually over the past three years, and its revenue in the first nine months of 2021 grew 99% year over year.
With $2 billion on the balance sheet and just 9% net loss margins, Nu's lack of profitability is not a major concern. What is, however, is the competition it faces. This company is a true David-versus-Goliath story, and while it has been successful in the past, it does not mean it will continue on this trajectory. Now that Nu is gaining steam, the oligopoly of banks running the show in Latin America could work together to choke out this disruptor.
However, investors with a larger risk appetite might want to consider showing Nu some love. Its stated mission is to "fight complexity to empower people in their daily lives," and I think that is a purpose many investors can get behind.
Netflix and chill
Trevor Jennewine (Netflix): Streaming platforms continue to lure viewers away from pay TV by offering a more convenient and (often) cheaper alternative to cable and satellite. In fact, pay TV providers will see annual revenue fall by $26 billion over the next four years, as more consumers cut the cord, according to research from Kagan. And streaming pioneer Netflix still dominates the industry.
In 2021, the company hit 221.8 million subscribers, up 9% from the prior year. That's 92 million more paid memberships than Walt Disney's Disney+, which ranks as the second most-popular streaming service. And Netflix's growing library of original content is a big reason for its success. In 2021, the company owned 12 of the top 15 original streaming series, according to Nielsen. And it owned 13 of the top 15 acquired streaming series.
So Netflix has a sizable and highly engaged audience that generates lots of data. The company leans on artificial intelligence to make sense of that data, gaining insights that improve content recommendations and production decisions. And that creates a flywheel effect that should result in more appealing programming over time.
Despite slowing subscriber growth, Netflix delivered relatively solid financial results in 2021. Revenue rose 19% to $29.7 billion, and the company showcased its pricing power by bumping up subscription fees, which boosted its operating margin 3 percentage points to 21%. As a result, earnings skyrocketed 85% to $11.24 per diluted share.
And it still has plenty of room to grow. Even in the United States -- its largest market with the most extensive penetration -- Netflix still accounts for less than 10% of screen time. But as more consumers cut ties with pay TV providers, that number should trend upward. And with the stock currently trading at 6.3 times sales (significantly lower than its five-year average of 9.1), now looks like a good time to buy a few shares.