Investors have a natural tendency to gravitate toward the most commonly owned stocks. This is understandable as investors tend to think familiar names like Microsoft and Amazon should perform well over the long term.
However, some lesser-known stocks -- particularly ones leading parts of an emerging industry -- hold greater potential for higher long-term returns. Investors seeking such growth tech stocks might want to consider Twilio (TWLO 1.89%) and PubMatic (PUBM 1.19%). Let's take a closer look at these two under-the-radar stocks with bright futures.
Admittedly, Twilio is a company that struggles for recognition. It is a communications platform-as-a-service (CPaaS) company. This means it supports software that handles video, messaging, and video communications. And since its clients are large companies such as Lyft and Airbnb, average investors may overlook it.
Nonetheless, Twilio developed a first-mover advantage in CPaaS, a key factor in landing high-profile clients. Moreover, switching service providers for such a service would bring costly outages, reducing the likelihood that clients will drop Twilio.
Twilio also added functionality such as Twilio Flex, a ready-made contact center that saves on development costs. It also just introduced Frontline, which enhances customer communications. These added functions help keep Twilio ahead of competitors and its revenue levels moving higher. Revenue for the first half of 2022 came in at $1.8 billion, 44% higher than in the same period in 2021.
Still, revenue growth has slowed, and that trend will likely continue as the company forecasted 30% to 32% revenue growth in the third quarter. The slowing growth and mounting losses pressured Twilio. The stock is down by around 85% from its high in early 2021.
Twilio responded to its challenges by laying off 11% of its workforce and vowing to restructure the company to place it on a path to profitability. Moreover, its price-to-sales (P/S) ratio fell to about 4, bringing the valuation near all-time lows.
Additionally, Future Markets Insights forecasts a compound annual growth rate (CAGR) of 25% for the CPaaS industry through 2032. If Twilio's revenue growth can continue to exceed that rate, the stock could be ready for a bull run.
Like Twilio, PubMatic likely fits the "under the radar" description as it exclusively serves businesses. It is an online advertising company serving the sell side of the business as it helps content creators increase monetization and reach appropriate ad audiences across platforms.
It stands out through its specialized hardware and software infrastructure. This gives PubMatic increased control, specifically the ability to organize hardware and software together. This allows it to build what it calls the "supply chain of the future," allowing clients to consolidate business relationships. This eliminates the need to manage large numbers of vendors within the chain.
Additionally, Fortune Business Insights forecasts a 24% CAGR for the demand side of the ad business through 2029, and PubMatic's performance seems to closely match that forecast. PubMatic generated $118 million in the first two quarters of 2022, 26% more than in the same time frame in 2021. That is slightly higher than the approximate 23% overall growth it forecasts for 2022.
It also comes at a time when the rising cost of revenue has hit the bottom line. Net income for the first half of 2022 was just under $13 million, 15% less than at the same time last year. Those challenges likely contributed to the 75% decline in the stock's price from highs hit in early 2021.
Still, its P/E ratio of 20 shows that it earns a profit, a critical advantage in a market wary of money-losing stocks. Moreover, that earnings multiple could indicate a bargain investors may regret overlooking once a recovery begins.