While the market started off the year by punishing many growth stocks, things seem to now be moving in a more positive direction. Volatility is the price of admission in the stock market, though that doesn't make a selloff any easier to stomach in the moment.
Still, investors can take downturns as an opportunity to purchase shares of companies that are likely to perform well in the long run. Here are two top tech stocks that fit the bill: Meta Platforms (META -1.48%) and Block (SQ -0.06%).
1. Meta Platforms
Facebook parent Meta Platforms has encountered its fair share of headwinds recently. The company is dealing with privacy changes to Apple's smartphone operating systems that affected advertisers' ability to reach their target audiences. Meta Platforms still generates the bulk of its revenue from ads, so it's not surprising that this development scared off some investors.
Still, despite recent hiccups, the online advertising industry isn't going anywhere. In fact, it's set to expand in coming years, and companies like Meta are well-positioned to benefit.
The sheer number of users across Meta's family of websites and apps (including Facebook, Messenger, Instagram, and WhatsApp) is impressive. As of the end of 2021, Meta had 3.59 billion monthly active users across all its apps, representing a 9% year-over-year increase. In 2021, the company brought in $117.9 billion in revenue and $39.4 billion in net income, representing respective year-over-year increases of 37% and 35%. The same year, Meta generated $38.4 billion in free cash flow, 67% higher than in 2020.
Meta Platforms can afford to invest in other opportunities thanks to the cash flow it generates. The company has been pouring money into its metaverse ambitions. These moves could yield serious benefits if, as some have suggested, the metaverse delivers a $1 trillion opportunity in yearly revenue once it is up and running.
Meanwhile, Meta Platforms is still looking for new ways to monetize Instagram. The company announced Instagram subscriptions in January, a feature that allows creators on the platform to set monthly prices for access to their content. If this feature becomes permanent, Meta Platforms will pocket a percentage of creators' subscription revenue, although it isn't yet doing so.
With all these potential growth avenues ahead, not to mention its massive user network, Meta will continue increasing revenue and profit, even if growth rates slow in the short run as a result of competitors' roadblocks. Expect Meta to rebound from its current stock woes and get back to providing market-beating returns in the long run.
Block, formerly known as Square, changed its name to reflect an expansion beyond its original business model. The Square segment of Block offers point-of-sale (POS) hardware to businesses of all sizes.
Beyond Square, Block has successfully built an ecosystem of brands through which it offers services such as invoicing, marketing, cash flow management, and more. Cash App, Block's peer-to-peer payment app, targets underbanked communities by offering debit cards (Cash Card), stock and cryptocurrency investing, direct deposit, and tax preparation services.
The Block ecosystems have been immensely successful. In 2021, the company reported total revenue of $17.7 billion, roughly 86% higher than the previous fiscal year. Block's total gross profit of $4.42 billion jumped by 62% year over year. The Cash App ecosystem reported a gross profit of $2.07 billion, a 69% year-over-year increase. Square, on the other hand, contributed $2.32 billion in gross profit, 54% higher than the previous fiscal year. Block's adjusted earnings per share for the year was $1.71, more than double compared to the previous fiscal year.
While some investors are worried about Block CEO Jack Dorsey's focus on Bitcoin (CRYPTO: BTC), the company's promising prospects extend beyond cryptocurrency.
Block sees plenty of room to grow with both Square and Cash App. The company reports that only about 30% of Cash App users have obtained a Cash Card; increasing that number will drive more spending on the platform and bring in higher revenue per user.
Block's January acquisition of buy-now-pay-later (BNPL) company Afterpay in an all-stock transaction valued at $29 billion further improves the company's growth runway. BNPL companies allow customers to purchase items and arrange installment payments, often free of credit. That matches seamlessly with Block's ecosystem of sellers. According to some estimates, the BNPL market will expand at a compound annual growth rate of 45.7% through 2030. That's good news for Block and its shareholders, as the company will undoubtedly be one of the beneficiaries.
Given the health of Block's business and the promising opportunities ahead, it looks like this company is here to stay.