The stock market has taken a nasty fall this year. Investors are increasingly concerned that the Federal Reserve's actions to combat red-hot inflation will put the economy in a tailspin. That would make it even harder for many companies to grow in the near term since it's getting more expensive to access the debt and equity capital they need for expansion.
However, that's not an issue for companies like CrowdStrike Holdings (CRWD 1.00%), Intuit (INTU 0.57%), and Zoom Video Communications (ZM 1.59%). While their stock prices are down more than 40% from their peaks, making it much more expensive to raise equity capital, that won't limit them since they generate a lot of cash and have cash-rich balance sheets. Because of that, they can keep growing even if market conditions worsen.
CrowdStrike: Cashing in on cloud security
Leading cloud security company CrowdStrike has been growing like gangbusters. Its revenue was up 58% in the second quarter of its 2023 fiscal year. The company expects to continue growing briskly, driven by demand for its cloud-based cybersecurity solutions.
The company generated $135.8 million of free cash flow in the second quarter, boosting its cash and equivalents to $2.32 billion against $740 million of debt. That gives it enormous financial flexibility to pursue new opportunities that further enhance its leading position and capitalize on the growth of the cloud security business.
The company recently did that, agreeing to acquire Reposify to bolster its threat intelligence and IT operations products. That will make those products even more appealing to current and potential customers, helping it grow sales and expand customer relationships. While smaller, financially strapped rivals will likely struggle in the current environment, CrowdStrike's financial strength gives it a competitive advantage. It can use cash (instead of selling shares following a 45%-plus decline) to potentially capitalize on additional opportunities to enhance its platform.
Intuit: Capitalizing on the decline
Intuit's stock price has tumbled more than 40% from the peak. Because of that, it would be highly dilutive for the financial technology company to issue new shares at these levels to finance its growth.
The good news is that Intuit, whose financial software includes TurboTax, doesn't need to sell shares since it has a cash-gushing business and a cash-rich balance sheet. The company ended its fiscal year with $3.4 billion in cash and investments against $6.9 billion of debt. Meanwhile, its net cash provided by operating activities was nearly $3.9 billion last year, up from almost $3.3 billion in the prior year.
Intuit's strong cash position and growing cash flows enable it to take advantage of the slump in its stock price. It recently approved a new $2 billion buyback, increasing its total authorization to $3.5 billion, so it can repurchase more of its beaten-down shares. The company also boosted its dividend. Even with those cash returns, Intuit has the wherewithal to continue investing in its business to keep growing at a healthy rate.
Zoom: Focusing on its cash position
Shares of Zoom have plummeted more than 70% over the past year. Because of that, issuing new stock to finance growth would be highly dilutive and could permanently destroy shareholder value.
But that's not a concern because Zoom generates free cash flow. Its adjusted free cash totaled $222.1 million in the second quarter. And it has a pristine balance sheet with $5.5 billion of cash and no debt.
That gives Zoom the money needed to jump-start growth as it seeks to build an integrated communications platform. Those investments are already starting to deliver results. Zoom recently launched Zoom Contact Center and Zoom IQ for Sales, which are seeing some early customer wins. It was also able to use its financial flexibility to acquire Solvvy and enhance its contact center solution.
With ample internal funding capability, Zoom has the ability to continue investing in innovations and product enhancements, which should enable it to keep growing its customer count and existing relationships.
All the funding they need
CrowdStrike, Intuit, and Zoom generate free cash flow and have cash-rich balance sheets. Because of that, they can continue making investments in the current environment, which gives them a competitive advantage over financially strapped rivals.
That puts them in the position to emerge from this downturn even stronger. It also makes the deep dive in their stock prices look like a potential buying opportunity since shares could bounce back, especially because these companies won't need to dilute investors and destroy value to get through to the other side.