Uncertainty is gripping global stock markets at the moment, with concerns about geopolitical tensions across Europe weighing on investor sentiment. But high inflation in the U.S. also has investors reevaluating their positions, as they prepare for the possibility of higher interest rates.
It's important to maintain a long-term focus, but in this environment, it's also great to own stocks that are less sensitive to shifting economic conditions. Three Motley Fool contributors think Duolingo (DUOL 5.34%), Block Inc. (SQ -1.97%), and MongoDB (MDB -2.10%) can offer your portfolio some growth, no matter what the market does next.
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A language-education powerhouse
Anthony Di Pizio (Duolingo): Duolingo has become a global leader in language education, an industry it estimates is worth $60 billion right now. Over 500 million users have downloaded the company's mobile application, but with 1.8 billion people learning foreign languages worldwide, there's still a long runway for growth.
Duolingo's ascent to the top is attributable to its gamified approach to education. It takes learning out of the formal classroom setting, and onto digital devices. It provides an interactive experience with a splash of competition, and even rewards users for maintaining a streak of daily lessons. The result is a fun and engaging way to learn languages, and that has opened doors to multiple revenue streams.
Since the Duolingo app is free to download and use, it's not overly sensitive to economic downturns or shaky market conditions. But the app is so valuable to its users that 2.5 million of them are paying for a subscription to unlock additional features. That's 6% of the overall monthly active user base, which topped 40.5 million in 2021. Subscriptions make up the majority of Duolingo's revenue, with advertising and one-off English tests contributing the rest.
What makes Duolingo unique is its organic growth. In 2021, 90% of its new users joined through word of mouth, not through paid advertising channels. This allowed the company to allocate 41% of its revenue to research and development, rather than marketing, which has paved the way for innovative new artificial intelligence tools to improve the learning experience.
Duolingo generated $251 million in revenue during 2021; in 2022, the company has told investors it expects that to grow 34% to $337 million. While it's still losing money overall, profitability is inching closer, as the company could lose as little as $1 million this year on an EBITDA (earnings before interest, taxes, depreciation, and amortization) basis. With so much potential growth ahead, and a product that isn't very sensitive to economic shifts, Duolingo stock is a great buy no matter what the market does next.
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A fintech bellwether
Jamie Louko (Block Inc.): Block (formerly Square) is known and highly regarded by consumers and businesses alike. Consumers know the company's Cash App, which -- along with PayPal Holdings' Venmo -- has made it easier than ever to pay your friends. Importantly for Block, Cash App is a money-making machine: The company's acquisition cost for new transacting users was just $10 in 2021, but its gross profit per user was $47 in the fourth quarter.
Other companies use Block's hardware and software to help connect every part of their businesses. Square is seeing major adoption from bigger businesses, likely driven by the fact that its customers are expanding their relationship with Block as they go. Of the company's gross payment volume (GPV), $15.7 billion came from customers with over $500,000 in annual GPV in Q4, and that grew 78% year over year. Additionally, 38% of gross profit came from customers using four or more products in 2021, and that has steadily increased since 2016.
Despite volatile market conditions, I like Block because of the way it balances leadership and growth. Although the company is a dominant force in the U.S., its opportunity for international expansion is wide. Block earned just 9% of gross profit outside of the U.S. in Q4 2021, showing how underpenetrated it is overseas.
Its room for growth in the crypto market is also immense, but Block has a particular interest in Bitcoin, rather than the crypto market at large. The company may want to shift to a more "diversified" crypto stance, in which it adopts multiple currencies rather than focusing on just one, to fully capture this opportunity.
All of this is on top of rock-bottom prices for Block shares. The stock is trading at just three times sales -- its lowest valuation since 2017. This could mean the company is significantly undervalued, considering its impressive growth opportunities. Block's major opportunity internationally, and its keen interest in Bitcoin, could allow it to continue expanding over the next decade. This is why it's still likely to be in my portfolio by the time I retire.
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Accelerating software development
Trevor Jennewine (MongoDB): Every software application needs a database, a place where information can be readily stored and retrieved. Traditionally, databases were architected using a relational model, meaning all information was stored in rows and columns, much like a spreadsheet. Unfortunately, 80% to 90% of data generated by modern applications is unstructured -- think images on social media, videos on streaming platforms, and product listings on e-commerce sites. Those things don't fit neatly into rows and columns, making relational databases a poor fit.
That's where MongoDB can help. As a pioneer in non-relational architecture, its database employs a more flexible document model, allowing developers to store data in format very similar to computer code. That makes application development more intuitive, faster, and less expensive. Better yet, because data isn't broken into complex tables, applications powered by MongoDB scale more easily.
That value proposition has translated into strong adoption. In fact, MongoDB is the most popular document database on the market, according to DB-Engines. And that edge has been a powerful tailwind for the company. In fiscal 2022 (ended Jan. 31, 2022), its customer count hit 33,000, up 33% from the prior year. Also, MongoDB once again posted an expansion rate over 120%, meaning the average customer spent at least 20% more. Revenue surged 48% to $874 million, and the company generated cash from operations of $7 million, marking the first time it has achieved positive cash flow on a full-year basis.
MongoDB is well positioned to maintain that momentum. The database software market will reach $106 billion by 2024, according to IDC (International Data Corp., a Blackstone Group subsidiary). And as applications become more data-intensive, adoption of document databases should accelerate. Given MongoDB's leadership position, that trend should be a powerful growth driver for the company. That's why this tech stock looks like a smart long-term investment no matter what the market does next.
