Sticky inflation and the Federal Reserve rapidly increasing interest rates have sent stocks into bear market territory. Many consumer internet and technology companies have faced the brunt of these losses, with the Nasdaq 100 down over 30% year to date (YTD).
You can't blame investors for moving into so-called "safer" investments like consumer packaged goods and utilities, but for those willing to buy and hold with a multiyear time horizon, now looks like an optimal time to buy beaten-down technology stocks on the cheap.
Here are two technology stocks that have a chance to double by 2025.
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1. Match Group
Match Group (MTCH 0.79%) owns multiple online dating platforms and is the leader in the fast-growing industry. Its most important services include Match.com, Tinder, and Hinge, but it has many others in its portfolio.
Match Group is riding the wave of online dating as the category continues to grow each year. From 2017 to 2021, Match Group's revenue grew at a compound annual growth rate (CAGR) of 22%, hitting just under $3 billion in 2021. And, due to the asset-light nature of these services, Match Group's adjusted operating margin has been above 35% every year since 2017.
With only 16.3 million paying users and less than 100 million monthly active users (MAUs) across its portfolio right now, I believe Match Group has a long runway to continue growing as online dating increases its market share around the world. If revenue can grow at a 20% CAGR through 2025, the company will generate $6.22 billion in annual revenue that year. At a 40% adjusted operating margin, that equates to $2.5 billion in annual profits. This will take some strong growth in order to achieve these financial numbers, but given Match Group's dominant position in the industry and the steady tailwind of adoption for online dating, I think it is doable.
In order to double from today's price of $69 a share, Match Group stock will need to hit $138 by 2025. Assuming its share count doesn't change, that equates to a market cap of $39.4 billion, or a forward price-to-earnings ratio (P/E) of 16 based on my 2025 earnings estimate. This is right around the market average, which is why I think Match Group's stock can easily double by then.
2. Spotify
Spotify (SPOT -7.28%) is one of the world's leading audio streaming services. The company started out in music streaming with an ad-free subscription service but has recently expanded into podcasts. At its recent investor day, management announced its intentions to move into audiobooks as well to capture all forms of the audio streaming market.
Like Match Group, Spotify is riding a steady tailwind as the world transitions from analog radio, single-song downloads, and piracy to audio streaming services. In Q1 2022, Spotify had 422 million MAUs and 182 million premium subscribers who pay for its ad-free music service. Spotify has been able to grow revenue for its premium segment at a 15%-plus clip since its IPO.
With the music streaming market estimated to grow at around the same rate from now until 2030, Spotify should be able to keep up this strong growth rate as long as it maintains market share. Add on rapid growth in podcast advertising (growing 100%-plus year over year right now), and it isn't unreasonable to expect Spotify to grow its consolidated sales at a 20% rate through 2025.
To double from today's price of $99 will require Spotify stock to hit $198 by 2025. Assuming no major share dilution, this is equivalent to a market cap of $38.2 billion. Based on 2021 revenue of $10.2 billion, if Spotify grows its revenue at a 20% CAGR through 2025, it will hit $21 billion in annual revenue. Long term, management expects the business to hit operating margins of around 10%, which would equate to operating income of $2.1 billion in 2025, or a forward P/E of 18.2 at a market cap of $38.2 billion. As with Match Group, this reasonable forward P/E indicates that Spotify has a chance to double by 2025.
Both Spotify and Match Group operate in industries with durable customer demand and secular tailwinds to propel future growth. With shares down 50% this year, these look like stocks with the potential to double over the next few years.
