Enterprises everywhere are migrating to the cloud or offering innovative cloud-based platforms and services. By 2025, over 95% of new digital workloads will utilize cloud-native platforms, according to Gartner. This is a tremendous increase over the 30% figure in 2021 and has some researchers predicting an addressable cloud market significantly eclipsing $1 trillion within this decade. This offers companies and investors a terrific opportunity to profit. Let's look at some dynamic cloud companies.
1. Amazon
Any conversation on cloud investing may as well start with the current king of the cloud infrastructure market, Amazon (AMZN 1.30%) and its Amazon Web Services (AWS) platform. AWS is the market leader with a market share of 33%, according to Statista. Over $62 billion in revenue was provided by AWS alone in 2021, with an impressive 30% operating margin.
The most telling aspect of AWS' dominance is its accelerating growth. The segment grew sales by 37% in 2019, only to see this fall to 30% in 2020, mainly due to the pandemic. The growth accelerated to 37% again in 2021. Because of the beauty of compound growth figures, this acceleration means a much more significant gain on a dollar basis, as shown below. The market leader is not resting on its laurels.
Data source: Amazon. Chart by author. YOY = Year over year.
Amazon is set to execute a 20-to-1 share split in June 2022, its first one since 1999. This could set the company up for potential inclusion in the Dow Jones Industrial Average. Because of the calculation method of the index, it isn't practical to include a stock valued at thousands per share; however, the split-adjusted price will put the stock in the right wheelhouse.
Image source: Getty Images.
The burgeoning advertising business is also a reason for investor optimism. Amazon reported $31.2 billion in advertising services sales in 2021, representing a massive 58% increase over 2020. As we patiently wait for the e-commerce business to return to typical profitability levels, these segments are doing a fine job of buoying results.
2. The Trade Desk
How people consume media is changing, and advertising is changing as a result. Video, display, and connected television (CTV) are critical mediums for advertisers and agencies. The Trade Desk (TTD 4.15%) provides its cloud-based demand-side platform, allowing clients to select from billions of digital advertising connections daily.
The Trade Desk's platform reaches 90 million U.S. households and 120 million CTV devices. This makes the company very attractive to advertisers. CTV advertising is also more nimble than traditional television ad buys, increasing targeting and ultimately the advertiser's return on investment.
Because of this, the company has experienced exponential growth in just a few short years. The Trade Desk took in $45 million in sales in fiscal 2014 and has increased this to nearly $1.2 billion in fiscal 2021. Over the last three fiscal years, sales have grown at a compound annual growth rate of 36%. And in 2021, this growth accelerated to 43%.
The Trade Desk also delivers GAAP profitability, which is somewhat unusual for a high-growth company. 2022 has been unkind to the stock, and it has plummeted almost 30%. The price-to-sales ratio of 25 is now lower than it has generally been since the market recovered from the March 2020 crash. While this could be an opportunity, investors should still be cautious with growth stocks.
3. CrowdStrike
With cloud migration and the work-from-anywhere trend, endpoint protection has never been more critical. CrowdStrike's (CRWD 3.63%) falcon platform is cloud-native and built specifically to stop breaches in the modern world.
The Falcon platform offers multiple modules so the customer can tailor it to their security needs. The majority of customers use four or more modules. Selling additional modules is terrific for expanding revenue, and CrowdStrike posts dollar-based net retention rates typically over 120%. In other words, customers spend more on CrowdStrike's products as time goes on. The platform is very sticky, with customer retention rates exceeding 97% in recent quarters.
This has led to swift growth in annual recurring revenues (ARR) and total customers. ARR reached $1.7 billion in the fourth quarter of fiscal 2022 (period ended Jan. 31) on 65% year over year growth, while total customers hit 16,325, also a 65% increase over the prior year.
CrowdStrike stock has weathered the growth stock storm in 2022 and has risen year to date, although it remains about 20% down from its 52-week high. The cybersecurity market is more important than ever, and CrowdStrike is now a major industry player with a bright future.
