Recession-proof tech stocks are hard to find, especially now.
Tech companies big and small have announced layoffs, and a number of software companies have complained of lengthening sales cycles, meaning customers are hesitant to spend as they look to cut expenses and prepare for an economic downturn.
However, if you're a tech investor looking for a good place to park your money, there are two tech stocks that look particularly well positioned to withstand any macroeconomic challenges.
1. A flexible travel disruptor
Airbnb (ABNB 1.17%) may not sound like a recession-proof stock. After all, the company competes in the travel industry, which is considered to be one of the more discretionary sectors.
However, Airbnb has a unique advantage in the travel industry thanks to its business model, which depends on individual hosts to rent out rooms or entire homes, rather than owning property itself.
That means the company has a lot of flexibility. Hosts will adjust pricing as needed, and new hosts will emerge as the economy shifts. Airbnb also offers accommodations at a wide range of price points and a wide variety of accommodations, including urban or rural destinations, and everything in between.
In a recession, people don't stop traveling. They might try to cut back on spending or find something closer to home, but kids still have time off from school, and people want to visit friends and family, and there's likely a suitable Airbnb for almost any occasion.
More importantly, a recession also encourages new hosts to join Airbnb as people look for new ways to earn extra income. In its recent app-update announcement, Airbnb said that single-room listings jumped 31% in the third quarter as hosts look for extra income to counter rising inflation. The company itself was founded during the financial crisis, and the founders came up with the idea to help them make rent.
Because the travel platform acts as a way for people to both earn extra income and find an affordable vacation or place to stay, it will be able to handle a recession much better than its hotel-based competitors, which have less flexibility with pricing and don't have the same ability to add extra inventory. A recession, in other words, seems likely to accelerate Airbnb's market-share gains.
2. The return of remote work
Remote work was popularized during the pandemic for safety reasons, but it's lasted through the reopening, too. Employees like it for the flexibility, and it has the added bonus of saving companies money on office space and travel. In a recession, those benefits could become even more valuable.
There was no bigger winner from remote work during the pandemic than Zoom Video Communications (ZM 0.05%). The videoconferencing software company posted revenue growth of more than 300% through the peak of the crisis, but growth has since slowed to just 8% in the second quarter.
But a recession could be a catalyst because it could help persuade companies to reduce their office footprint by using Zoom. Similarly, if enterprises scale back on business travel, Zoom is an obviously less expensive substitute.
Management laid out that case in its most recent earnings call. Chief financial officer Kelly Steckelberg said: "Zoom remains well positioned in this environment as customers look to increase productivity and collaboration while moving away from expensive legacy vendors. Our products are designed to drive efficiency and cost savings within organizations and are loved by both their employees and their customers."
There's another reason Zoom looks better prepared for a recession than most of the tech sector. The stock is highly profitable thanks to its surging growth in the pandemic, and that means the business, which is based on a subscription model, can generate heaps of cash flow even during tough times.
Additionally, that profitability also puts a floor on the stock as Zoom is arguably priced for value, trading at a modest price-to-earnings ratio of just around 20. With its strong cash position and recession-proof business, Zoom is also in a good position to look for an acquisition in a recession, especially if valuations in the tech sector keep falling.
While Zoom stock may never recapture its former peak, that doesn't mean the stock can't outperform again. A recession could help remind investors of Zoom's profit potential and why the company is the clear leader in videoconferencing software.
