Stock splits are all the rage right now. So far in 2022, tech giants Amazon, Alphabet, and Tesla have announced their intentions to split. But what does that mean?
A stock like Amazon has a share price of $3,300, for example, and smaller investors sometimes have trouble scraping up the cash to buy a single share. To rectify this, the company will conduct a 20-for-1 stock split which will reduce its share price to $165, making it much easier for investors across the financial spectrum to own it. Fundamentally this adds no value to the company at all, but investors perceive it as a positive because they think it'll result in more money flowing into the stock.
In the long run, it's more important to focus on the merits of the actual businesses you're buying. Three Motley Fool contributors think you should look past the splitters, and buy Atlassian (TEAM 2.91%), Airbnb (ABNB 0.52%), and Teladoc Health (TDOC 0.56%) instead.
Teamwork makes the dream work
Anthony Di Pizio (Atlassian): Software-as-a-service (SaaS) company Atlassian is focused on connecting organizations on both professional and personal levels. Whether its customer is a start-up or a large enterprise, the company has a product to help run operations, marketing, human resources, and software development, among other things.
Atlassian benefited from the work-from-home environment triggered by the pandemic, because its software helps teams work collaboratively even from different locations. And since remote work is becoming increasingly common, the company will likely continue riding this tailwind. Its Confluence platform not only allows employees to discuss their jobs, but it also serves as a digital water cooler allowing for connections on a more social and personal level.
But Atlassian's flagship platform, Jira, is the No. 1 tool for software development teams. It offers the ability to collaboratively track, plan, and release software products, and its capabilities are expanding with the use of advanced technologies like artificial intelligence. Atlassian has invested in building Jira Service Management, which allows teams to better serve their own customers through digital help desks, and to provide more internal visibility by adding context to the issues at hand.
Together, Atlassian's products have attracted 226,521 users, and the company is now focused on bringing as many of those customers into the cloud as possible, as it unlocks greater collaborative capabilities. In fact, the cloud has grown to make up the majority of Atlassian's revenue, and in the fiscal second quarter of 2022 cloud revenue increased by 58%, outpacing total revenue at 37%.
Atlassian stock has declined 37% from its all-time high amid the broader tech sell-off, and that might be a buying opportunity. Analysts expect the company will generate $2.7 billion in revenue during the 2022 fiscal year, but that's a drop in the bucket compared to its addressable market, which could be as large as $24 billion annually, and growing.
A home for everyone
Jamie Louko (Airbnb): This hospitality platform has become one of the go-to sites for parents, casual vacationers, virtual workers, and nearly everyone looking to find unique places to stay. Airbnb is one of the leading hospitality providers for these people, with over 4 million hosts on the platform opening their doors.
Airbnb amassed nearly $47 billion in gross booking value in 2021, which might not have been possible without the company's strong network effects. Hosts drive Airbnb's success: The more stays that are offered, the more appealing it is for vacationers to look at Airbnb. This increase in demand from consumers also creates a nice flywheel -- higher demand makes the platform more intriguing to hosts, which creates more demand from consumers. As a result, Airbnb's leadership in this market is likely to continue to grow over time.
The most impressive thing about Airbnb is its resiliency during one of the worst times imaginable for a hospitality company -- a pandemic in which travel flatlined. While the company was hit hard, many hosts were still able to offer socially distanced stays to consumers, which allowed vacationers to travel safely. Because of this, Airbnb established itself as one of the platforms where safety and health were prioritized.
As the world reopened, the company leveraged its growing brand to quickly become a go-to for vacation-deprived consumers. Now, Airbnb's revenue is back to pre-pandemic highs, and its nights booked on the platform are expected to surpass Q1 2019 levels in Q1 2022. Importantly, the company also saw a quick bounce-back on its bottom line: Net income in Q4 2021 reached $55 million, coming back from a loss of nearly $4 billion in Q4 2020.
Just like any consumer-facing platform, Airbnb has flaws; it has struggled with price transparency, which has reduced customer satisfaction. On the flip side, this hasn't affected actual consumer habits too much, considering the company's unwavering recent growth. With its fast-growing brand name and network effects, Airbnb looks like a stock that could continue expanding and be a fruitful investment over the long term.
Making healthcare more patient-friendly
Trevor Jennewine (Teladoc Health): Teladoc is reimagining healthcare. The company serves clients like employers, health plans, and hospitals, which typically purchase access to Teladoc's telemedicine platform on behalf of their beneficiaries (such as employees, members, or patients). Teladoc allows these people to meet with clinicians from the comfort of their own homes, 24 hours a day and 365 days a year.
Of course, Teladoc is far from the only player in the industry, but the breadth of its platform differentiates it from rivals. Teladoc's provider network includes 50,000 medical professionals with expertise across 450 subspecialties, and its portfolio addresses primary and acute care, mental health and specialty care, and the management of chronic conditions. That competitive edge helped Teladoc deliver solid financial results last year, despite tough year-over-year comparisons.
In 2021, U.S. paid memberships rose 3% to 53.6 million, and chronic-care enrollment jumped 22% to 729,000. More importantly, Teladoc powered 15.4 million visits, up 38% from the prior year, evidence of an uptick in engagement. In turn, revenue surged 86% to $2 billion, and the company generated $130 million in free cash flow, up from a loss of $80 million in 2020.
Looking ahead, Teladoc puts its total addressable market at $261 billion; more than half of that figure comes from the recently launched Primary360 product, a virtual primary care service in which patients are paired with a dedicated physician. Currently, fewer than 1% of Teladoc members have access to Primary360. But if the company can drive adoption of that product, it could supercharge its growth trajectory -- both directly and indirectly through referrals to other services, such as chronic-condition management and specialty care.
Telemedicine is more convenient than traditional office visits, and the breadth of Teladoc's portfolio makes it the gold standard for employers, health plans, and hospitals looking to provide virtual care options to their beneficiaries. With Teladoc stock trading at 5.7 times sales -- near the low end of its historical range, and far cheaper than its five-year average of 12.2 times sales -- now looks like a good time to invest.