While growth stocks performed splendidly in the past decade, recent developments -- particularly impending interest rates hikes in the U.S. -- have led to a bit of a market exodus from growth-oriented companies. For many growth stocks, elevated valuation was also an issue that has played a role in the recent downturn.
While investors shouldn't ignore these headwinds, there remain plenty of great companies that are likely to make it out of this volatile period with their investment theses intact. Let's look at two excellent growth stocks that are worth buying now and holding on to: Snap (SNAP 2.24%) and Adyen (ADYE.Y 1.29%).
Snap, the parent company of the popular app Snapchat, has been one of the winners of the earnings season. The company's fourth-quarter results blew it out of the park, with revenue growing by 42% year over year to $1.3 billion. The bottom line came in at $22.6 million -- the first time Snap recorded a net profit as a publicly traded company.
But there were other gems in the company's quarterly update, including a 20% year-over-year increase in daily active users to 319 million. Snap's average revenue per user also grew by 18% year over year to $4.06. A growing user base coupled with higher monetization is a recipe for success for Snap. The market agreed, sending its stock more than 50% higher following its quarterly update.
While enthusiasm regarding the company's results makes sense, long-term investors will want to focus on whether Snap can continue performing well.
One encouraging thing for the company is how it has managed to navigate the challenges posed by Apple's iOS privacy changes that allowed people to turn off data tracking. Advertisers used this information to release targeted ads, which has become harder following Apple's updates. However, Snap has continued to attract new advertisers onto its platforms, many of whom have adapted their advertising methods to adjust to Apple's changes.
During the fourth quarter, the company's active advertiser count reached an all-time high. Meanwhile, Snap is a leader in augmented reality (AR) thanks in part to its Snapchat Lenses. As company CEO Evan Spiegel said, "Over 200 million people engage with augmented reality on Snapchat every day, and our community now plays with AR Lenses an average of more than 6 billion times per day."
Lenses is driving engagement on Snapchat, and it could help attract even more users -- two factors that will only lead to more ad revenue for the company in the long run. Even after its recent jump, Snap's stock price is down by almost 34% in the past year. Investors would do well to add shares of the tech company before they jump even higher.
Adyen has also had a successful earnings season. The Netherlands-based business-to-business fintech company is known for integrating several distinct intermediaries of a typical payment transaction into a single platform. Adyen provides its clients with payment gateways, payment processing, risk management, all into a single framework, allowing them to accept multiple forms of payments across all sales channels and in various regions worldwide.
The company's customers include prominent multinational corporations such as Spotify, Uber, and Etsy. In the second half of 2021, Adyen's revenue, which it generates primarily through processing and settlement fees, soared by 47% year over year to 556.5 million euros ($632 million). That was on the back of a 72% year-over-year increase in the company's processed volume, which clocked in at 300 billion euros ($340.7 billion) for the period.
Adyen's net income for the period came in at 264.9 million euros ($300.8 million), increasing by an impressive 62% compared to the second half of 2020. While Adyen's share prices have fallen along with the broader market in the past few months, that drop was not a result of poor financial performances.
And while marketwide issues may continue to weigh on the company in the near term, Adyen looks well-positioned to continue delivering excellent financial results, and its stock market performance should recover eventually.
The pandemic accelerated the shift toward e-commerce and online payments, long-term megatrends that will work wonders for companies like Adyen. The fintech giant will benefit from expanding into new territories. Adyen still generates most of its revenue from Europe, the Middle East, and Africa (EMEA).
During the second half of 2021, the company generated 331.7 million euros ($376.7 million) from this region, which grew by 42% year over year and represented 59.6% of its total revenue. Adyen's revenue in North America of 131.3 million euros ($149.1 million) only represented 23.6% of its total revenue, but increased by a much faster 70% compared to the year-ago period.
As Adyen achieves greater penetration in various regions, including North America, expect the company to continue posting increasing revenue and profits. And considering its services benefit from high switching costs -- its clients can't easily jump to competing payment platforms without risking business disruptions -- Adyen looks set to remain a fintech leader for many years to come.
That's why it is worth adding shares of the company to your portfolio today.