There are a lot of companies in the technology sector that put up strong results and are likely to have promising futures and positive shareholder returns. However, some of these companies also have significant risks that make investing in them less appealing.
No investment is risk free, but there are two companies I consider absolute no-brainer purchases and would recommend without hesitation. CrowdStrike (CRWD +2.19%) and The Trade Desk (TTD +2.71%) have seen their stock prices take a hit in 2022, but each has an important growth driver that will accelerate shareholder value.
An essential business that's growing with its users
Cybersecurity is an area of the market every investor should have some exposure to in their portfolio. With the rapid pace at which our world moves online, keeping data secure, both on physical devices and in the cloud, is only going to become more important.
NASDAQ: CRWD
Key Data Points
CrowdStrike is a leader in artificial intelligence-driven, cloud-based security software that is winning over businesses at an impressive pace. Its software detects and prevents security risks and immediately adapts, pushing out what it has learned to the rest of its network and making all customers more secure.
The company ended its fiscal 2023 second quarter (ended July 31) with 19,686 subscription customers, up 51% year over year, and those customers include more than half of the Fortune 500.
Once customers are on board, they also spend more with the company over time. CrowdStrike had a dollar-based net retention rate of 124% at the end of fiscal 2022, and that figure has continued to climb since then. This means existing customers spent at least 24% more in the past 12 months than they did in the year prior. Additionally, 59% of customers have adopted five or more modules (products), and 36% have six or more.
CrowdStrike estimates its total addressable market could reach $126 billion by 2025. Even taking that estimate with a grain of salt, CrowdStrike's current annual recurring revenue is only $2.14 billion, which shows just how much potential growth is still in front of the company.
Riding the wave of connected TV
There are many reasons to like buy-side advertising platform The Trade Desk. The company has posted steady revenue growth year after year, and despite some lumpiness during the pandemic, it shows few signs of slowing down.
NASDAQ: TTD
Key Data Points
The Trade Desk's platform enables ad buyers to get the right ads in front of the right consumers at the right time. Traditionally, advertisers would need to decide where to spend their advertising budgets based on broad assumptions about who would see them. With programmatic advertising, ads can be placed using customer-specific targeting. As a result, these programmatic ads provide a better return for advertisers.
With each passing year, more ads are being served through connected TV (streaming) as opposed to linear TV (cable). Connected TV advertising spend was $14 billion in 2021, and it's expected to grow to $39 billion by 2026, showing the importance of this market to The Trade Desk. Connected TV is what allows programmatic ads to work.
On the second-quarter earnings call, connected TV (CTV) was mentioned more than 50 times with founder and CEO Jeff Green referring to it as a secular tailwind the likes of which he's never seen before. In the quarter, The Trade Desk outpaced the revenue growth of its competitors and gained market share, despite challenging macroeconomic conditions. With its market positioning and a massive, growing opportunity, it's not hard to see The Trade Desk as a long-term winner for investors.
Buying the dip is icing on the cake
Both of these businesses are worth paying a premium for. However, because of the current bear market, these great businesses are trading for significant discounts from their recent highs. Both stocks have a price-to-sales (P/S) ratio of about 21. To be clear, that's not at all cheap. But this valuation is the lowest Crowdstrike has seen since the start of the pandemic, and it's the historical average for The Trade Desk.
These companies have bright futures ahead of them and have continued to put up strong results in uncertain times. Both are worth buying right now without hesitation.
