Many "hypergrowth" tech stocks hit all-time highs last year, driven by the market's bullish optimism in a post-pandemic recovery, stimulus checks, the growth of free trading platforms like Robinhood Markets, and discussions on Reddit's WallStreetBets (WSB) subreddit. Bullish fund managers like Cathie Wood also fanned those flames with highly publicized purchases.
But in recent months, many of those frothy stocks were crushed as inflation, rate hike fears, and Russia's invasion of Ukraine sparked a rotation toward more conservative investments. Wood's Ark Innovation ETF -- arguably the flagship fund of hypergrowth stocks -- has declined nearly 40% this year.
Image source: Getty images.
However, that sell-off has also created promising buying opportunities for investors who can stomach the near-term volatility. Here are four hypergrowth stocks I'd buy in this challenging market: Airbnb (ABNB 0.75%), Datadog (DDOG 4.95%), Cloudflare (NET 1.44%), and Adyen (ADYE.Y -1.57%). Let's find out a bit more about these four hypergrowth tech stocks to buy in 2022.
1. Airbnb
Airbnb's revenue declined 30% in 2020 as the COVID-19 pandemic caused global travel to grind to a halt. But in 2021, its revenue soared 77% as those lockdown measures were relaxed. In 2022, analysts expect its revenue to rise 32% and break its streak of losses with a full-year profit.
Airbnb's business model is naturally insulated from inflation, for two reasons: Tighter budgets will drive guests toward cheaper accommodations, while a need for extra income will encourage hosts to rent out their properties.
Airbnb's stock isn't cheap at 12 times this year's sales, but its ongoing disruption of traditional hotels, its growing brand recognition, and its resilience against macroeconomic headwinds all justify that slight premium.
2. Datadog
Datadog's cloud-based platform monitors an organization's databases, servers, and applications in real time, then aggregates all that data on unified dashboards for IT professionals. This streamlined approach makes it much easier to spot and diagnose tech issues.
Datadog's revenue surged 66% in 2020, then grew 70% in 2021 as its total number of customers with over $1 million in annual recurring revenue more than doubled. It also kept its dollar-based net retention rate above 130% for 18 straight quarters. Its gross margins are holding steady and its net losses are narrowing.
Analysts expect Datadog's revenue to rise 49% to $1.5 billion this year, and the stock trades at about 30 times that estimate. That's a premium valuation, but it should be easily supported by Datadog's stellar growth rates.
3. Cloudflare
As the Russian-Ukrainian conflict escalates, fears of cyberattacks and internet disruptions are rising. Cloudflare's platform addresses those fears with a content delivery network (CDN), which accelerates the delivery of digital media on apps and websites, and cybersecurity tools that shield websites from distributed denial-of-service (DDoS) attacks.
Cloudflare was already growing like a weed prior to the conflict. Its revenue rose 50% in 2020 and 52% in 2021, and analysts expect its revenue to grow 42% to $931 million this year as it ekes out a very slim profit. Cloudflare's stock trades at over 40 times that estimate, but the company could still have plenty of room to grow as companies aggressively secure their websites and accelerate the delivery of their digital content to visitors.
4. Adyen
Adyen, which is based in Amsterdam, develops backend software that helps merchants accept over 250 payment methods, including credit cards, debit cards, mobile wallets, and payment apps. It isn't a consumer-facing company like PayPal Holdings or Block, and it doesn't dabble in cryptocurrency, stock trades, or linked debit cards.
Instead, Adyen merely provides code that can be integrated into existing payment systems. Plenty of big retailers, including PayPal's old partner eBay, were drawn to that flexible model.
Adyen's revenue rose 28% in 2020, even as many retailers shut down during the pandemic, and grew 46% in 2021 as those headwinds faded. Analysts expect its revenue and earnings to grow 38% and 39%, respectively, this year. The stock definitely isn't cheap at 76 times forward earnings and 36 times this year's sales -- but investors shouldn't overlook its low-key approach in a sector filled with hyped-up platforms.
