What happened
There's little question that Wall Street has a bad case of the jitters thus far in 2022. Nowhere was that more evident than in the cloud computing space this week, when bullish comments by a CEO caused cloud-native stocks to plunge. It also didn't help that the monthly report on inflation was much worse than economists had predicted.
With that as a backdrop, shares of HubSpot (HUBS -2.40%) cratered as much as 15.9% this week, MongoDB (MDB -0.86%) tumbled as much as 14.2%, and Twilio (TWLO -1.59%) crumbled as much as 13%. As of the market close on Thursday, the three were still trading lower, down 13.7%, 11.2%, and 12.4%, respectively.
So what
ServiceNow CEO Bill McDermott was the chief executive who offered his prognosis of the economy and the future of tech stocks -- and overall, his take was surprisingly bullish. While he acknowledged the challenges concerning the war in Europe and the resulting high cost of energy, he cited technology as the solution. "This doesn't fundamentally change the narrative that tech is the only way to cut through the crosswinds," McDermott told Jim Cramer during an appearance on CNBC's Mad Money.
McDermott's views weren't all wine and roses, noting that inflation is at 41-year highs, interest rates are rising, and the dollar is the strongest it's been in more than 20 years. When the dollar is strong, goods and services are more expensive in foreign currencies, thereby reducing demand in international markets. Given those challenges, McDermott said, "The mood is not great."
Investors took his comments as the glass was half empty, selling off cloud stocks en masse.
Another factor weighing on investor sentiment was a report from the U.S. Bureau of Labor Statistics detailing inflation in the month of June. The Consumer Price Index (CPI), which measures changes in the cost of a basket of goods over time, surged 9.1% year over year, rising at the fastest rate since November 1981.
Even stripping out volatile food and energy prices, the core CPI rose 5.9%, confirming that consumers are feeling the pinch of higher prices.
Now what
There's little doubt that macroeconomic factors are weighing on stock prices, particularly as investors consider the potential for a recession. Yet, for those with a long investing time horizon, these stocks are likely a buy. Investors need look no further than recent results for evidence to support that theory.
Twilio's first-quarter revenue grew 48% year over year. Stripping out its recent acquisition of Zipwhip, revenue climbed 35%. Active customers grew 14% year over year, and at the same time, its dollar-based net expansion rate of 127% shows that existing customers are spending more. While the company isn't yet profitable, Twilio expects to achieve operating profits beginning in 2023. Perhaps as importantly, management is confident it can deliver organic year-over-year growth of at least 30% over the next several years.
HubSpot's first quarter results were similarly robust. Revenue grew 41% year over year, while its subscription revenue grew 42%. Its customer count grew 26%, while the average subscription revenue per customer climbed 12%. HubSpot isn't yet profitable but generates strong and growing free cash flow, which illustrates that non-cash items, including depreciation, are causing the loss. The company also expects to generate full-year revenue growth of 32% in 2022.
Rounding out our trifecta of strong performers is MongoDB. Its first-quarter revenue grew 57% year over year, while revenue from Atlas -- its fully managed cloud-native database -- surged 82%. Its customer base grew 31% year over year, and MongoDB is also profitable on a free-cash=flow basis. The company expects to grow its full-year revenue by 35% in 2022.
Data by YCharts.
Each of these stocks has been dragged lower by the broader market downtrend and the potential for a recession. Given the current macroeconomic conditions, there aren't any guarantees that they won't ultimately go lower. That said, for patient investors who plan to buy and hold for years, Twilio, HubSpot, and MongoDB represent a compelling opportunity.
