While $200 may not sound like much in the grand scope of retirement, it can be a great starting point when adding new stocks to your portfolio -- particularly with the advent of fractional share buying at many brokerages.
Furthermore, I believe it is vital to have exposure to one particular market segment in today's digital age: the cloud industry. Despite Alphabet, Amazon, and Microsoft attracting much attention in the cloud space, many smaller companies operate in unique, highly valuable niches.
Two such niche cloud providers are DigitalOcean Holdings (DOCN 0.80%) and Veeva Systems (VEEV 1.02%). Let's see why their particular areas of focus make them potential game-changers for your retirement.
Image source: Getty Images.
1. DigitalOcean
Offering infrastructure- and platform-as-a-service (IaaS and PaaS) solutions to small and medium-sized businesses (SMBs), DigitalOcean's cloud operations give entrepreneurs everywhere an affordable opportunity to scale their ventures. In many ways, DigitalOcean's cloud is similar to Amazon's AWS offerings, except instead of focusing on larger (if not massive) enterprises, it focuses on entrepreneurs and SMBs at a lower price point.
Due to this lower price point and its more simplified offerings, the company has attracted over 600,000 customers, which grew by 6% year over year in 2021.
Better yet for investors, not only is DigitalOcean bringing in new businesses, its existing customer base is rapidly expanding how much it spends on its services.
Image source: DigitalOcean Q4 Earnings Presentation.
Net dollar retention (NDR) is a metric that shows how much the company's existing customers are increasing their spending on its products, including customer churn. Anything above 100% shows growth within the company's existing customer base, making DigitalOcean's growing NDR of 116% very promising for its long-term health.
Similarly, DigitalOcean's monthly average revenue per user (ARPU) jumped 29% year over year in the fourth quarter, which shows an incredibly sticky user base when paired with its growing NDR.
As a result of these healthy customer-centric metrics, DigitalOcean's revenue grew by 37% year over year in Q4, giving it an annual run rate of nearly $500 million.
So naturally, shares of the company have been bid up thanks to these promising figures, right?
Well, no, unfortunately. Down around 45% in the last three months, DigitalOcean has been swept up in the broader high-growth technology sell-off -- leaving it to trade with a market capitalization, or company price tag, of around $5 billion.
Considering that the company's core IaaS and PaaS markets expect to grow by 27% annually to $145 billion, according to IDC, I can't help but take another look at DigitalOcean at these prices.
Furthermore, with just over 600,000 businesses in its current customer base, the company has a massive potential growth runway ahead of it, with 100 million SMBs operating globally.
With this market opportunity, the stickiness of its services, and management targeting $200 million in free cash flow by 2024, DigitalOcean looks to offer promising multi-bagger potential over the long haul.
2. Veeva Systems
Operating in the life sciences industry, Veeva Systems generates revenue in two business segments: commercial solutions and research and development (R&D) solutions. This revenue comes from subscriptions and services, which account for 80% and 20% of sales totals, respectively.
Veeva's commercial cloud segment provides solutions for data, analytics, content, and engagement in the broader healthcare industry. This unit grew its subscriptions by 18% year over year in 2021 and accounts for 56% of Veeva's total sales.
Meanwhile, Veeva's R&D solutions "provide the operating system for the full lifecycle of product operations," including clinical data management, clinical operations, regulatory documentation, quality, and drug safety. This segment grew subscriptions by a stunning 40% year over year in 2021 and is poised to become the larger of Veeva's business segments.
The company is an early-mover by bringing cloud services to the life sciences industry. As a result, Veeva saw its stock rise as high as 600% in the last five years before declining during the tech-growth sell-off recently.
Ultimately, Veeva is operating in an enormous $2.2 trillion life sciences industry -- in which it sees a $13 billion target addressable market for its various cloud offerings. Compared to its $1.9 billion in sales projected for 2022, this represents a promising growth runway, especially considering R&D's rapid ascension.
On top of this for investors, Veeva sports large 23% and 34% profit and free cash flow margins, respectively. Through its sticky subscription sales and an NDR of 119%, the company has become a real cash machine.
Trading at 37 times free cash flow, Veeva is not necessarily cheap by old-school qualifications. Still, it appears to be a well-positioned, high-quality business, trading at a reasonable price -- the type of cloud stock that if held for the long term could help you retire early.
