The tech sector has left a bad taste in the mouths of investors over the past six months as a 13-year-long bull run came to an unceremonious end. The market began rotating out of previously high-flying tech stocks into more defensive consumer-oriented ones, causing the tech-heavy Nasdaq-100 to lose more than 20% of its value -- official bear market territory.
Since that low point a month ago, the index has rallied again, rising almost 12%. It hasn't reached the levels it started the year at, but investors seem comfortable buying cheap tech stocks again. For those ready to get their feet wet again, these three tech stocks are great buys.
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1. Fastly
Ever since last summer's internet outage, edge cloud-services provider Fastly (FSLY -3.08%) has been on one long, sometimes dramatic, decline. Shares of the content delivery network (CDN) are down 75% from their highs as growth has slowed and losses persist.
Yet like the tech index itself, Fastly has bounced off its lows and is 40% above last month's nadir. There's good reason to believe it can continue growing from here on out.
Fastly ended 2021 on a high note, growing revenue beyond guidance to $97.7 million. This came as its dollar-based net expansion rate, or how much more money the same group of customers from last year is spending on the platform this year, increased to 121% in the fourth quarter versus a 118% increase in the third. And the number of customers grew 34% to over 2,800 as the number of enterprise-level customers jumped 37% year over year.
Because more businesses continue to move increasing amounts of data online and into the cloud, it will be Fastly they turn to access content quickly and securely. Particularly with the advent of the metaverse -- the virtual world being created where people, companies, and brands can interact with one another -- Fastly ought to be able to capitalize on the need for enhanced computing power to design, build, and operate those virtual worlds. This could explain why analysts estimate the company will grow 30% annually for the next five years.
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2. Shopify
The drop in price e-commerce platform provider Shopify (SHOP -0.41%) has suffered since November seems to be short-sighted. While the market transitioned out of previous high-flying names, particularly those like Shopify that benefited from the lockdown portion of the pandemic. We saw people flock to the internet to start their own online businesses during that time, but contrary to expectations, the market opportunity is still there. Growth may be slightly slower than the meteoric pace previously set, but it's still meaningfully above its pre-pandemic level.
Fourth-quarter revenue north of $1.3 billion was 41% greater than the prior year and was 173% more than it reported in 2019 when revenue grew to $505 million, a 47% year-over-year increase. Yet the stock is priced now as though all the growth and improvements to its business over the last two years never happened.
As the premier provider of tools for entrepreneurs and larger, more established businesses, Shopify is pivoting to assert more control over its operations by becoming a vertically integrated, one-stop shop. It launched Shopify Balance, a merchant money management account; Shopify Capital, a small business loan boutique; Shopify Plus, a fully hosted, enterprise e-commerce platform for fast-growing brands; and non-fungible tokens, or NFTs, will soon be available to help businesses and brands better connect with customers.
One of the effects of the pandemic was it not only gave people the incentive to strike out on their own, but it cemented in the minds of consumers how critical e-commerce is to their lives. Shopify will benefit from both forces moving forward.
Image source: Getty Images.
3. Twitter
I have a confession to make: I dislike Twitter (TWTR). Not the stock, per se, but the platform, which has evolved over time to provide heat, but little light on social discourse. But I'm hopeful effective change can be made that allows the short-form message platform to return to its more youthful promise and can grow meaningful revenue and profits.
Tesla CEO Elon Musk buying a massive $2.8 billion stake to become the company's largest shareholder, and then being appointed to Twitter's board of directors (which he then ultimately decided against doing) is one of the catalysts for change, one which the market liked as well. Twitter's stock rocketed 30% higher on the news, though it's still down from its 52-week high.
Still, Musk is only one person and it's the business underneath that remains key to recovery. Fourth-quarter revenue grew 22% year over year as monetizable daily active users (mDAU) rose 13% year over year to 217 million. It added 1 million DAU in the U.S. and 5 million internationally last quarter. That's key because Twitter's business model, which is online advertising, is primarily driven by increases in mDAU. And unlike Meta Platform, which said Apple's privacy rule changes greatly impacted Facebook's ad business, Twitter said there was little effect on its own.
Twitter plans to grow rapidly over the next two years to hit 315 million daily active users (DAU) and $7.5 billion in revenue by the end of 2023. It also authorized the repurchase of $4 billion worth of stock, a move CFO Ned Segal says "represents confidence in our strategy and execution."
With analysts expecting the company to grow around 80% per year for the next few years, Twitter ought to be considered a good, long-term bet.
