It's no secret that growth stocks have taken it on the chin this year. Decades-high inflation has prompted the U.S. Federal Reserve to aggressively raise interest rates, bringing the current benchmark rate to between 3.75% and 4%. Sentiment has sunk as investors fret over companies' ability to keep growing as the era of cheap money dries up. The pessimism has led to an all-round plunge in valuations and share prices.
There's a silver lining, though. Many companies are still growing at a healthy clip and continuously improving their product or service offerings. With beaten-down valuations and rock-bottom share prices, it has opened up a golden opportunity for investors to scoop up shares of well-run companies on the cheap. And when the economic weakness passes and inflation is brought under control, these stocks will be well-positioned to surge ahead of the competition.
The three following stocks may have seen their share price cut by more than half in the year to date, but they have attributes that should position them for a strong rebound soon.
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DocuSign
DocuSign's (DOCU 1.77%) latest quarterly earnings show that the electronic signature company still has what it takes to post steady growth. Revenue came in at $645.5 million, up 18% year over year, with subscription revenue climbing similarly. Billings saw a 17% year-over-year growth to reach $659.4 million while the gross margin inched up to 80% from 79% a year ago, demonstrating DocuSign's strong pricing power.
The company's customer base continues to expand, going from 1.17 million at the end of fiscal 2022 to 1.32 million by the end of the third quarter of its current fiscal 2023. The more important metric, customers with an annual contract value exceeding $300 million, went from 852 to 1,052 over the same period.
For all of fiscal 2023, DocuSign offered revenue guidance of $2.49 billion, up 18% year over year, continuing the pattern of consistent growth that the company has displayed. What's more, free cash flow for the first nine months of the fiscal year remained healthy at $316.1 million, a 15.6% year-over-year drop from $374.7 million in the prior period.
DocuSign continues to enhance its offering with the latest iteration of its flagship Agreement Cloud product, with new features such as a customizable user interface and enhanced insights surrounding contract renewals and notice periods. With a total addressable market of $50 billion, DocuSign has significant room to grow its top line in the coming years.
Okta
Okta (OKTA 1.12%), like DocuSign, has posted strong growth despite seeing its share price take a tumble. Its Q3 2023 earnings saw revenue jump 37% year over year to $481 million with billings increasing by the same amount to $532 million. Okta has also narrowed its non-GAAP net loss to $589 million, a sharp improvement from the prior year's $10.6 million.
Investors should also be cheered by the identity management platform's fourth quarter outlook. The company expects revenue to grow by 27%-28% year over year to between $488 million and $490 million, and for non-GAAP diluted earnings per share to come in between $0.09 and $0.10 versus a loss of $0.18 in the year-ago period.
The company's trailing 12-month net retention rate stayed high at 122% for its latest quarter, and investors are hoping that Okta has finally successfully integrated its recent acquisition of Auth0 to boost its business prospects.
In terms of customer numbers, Okta is gaining good traction with a 22% year over year jump to 17,050 in Q3 2023, and the number of customers with more than $100,000 in annual contract value was up 32%. With an $80 billion total addressable market for identity management, Okta believes it still has a long runway for further growth.
Zoom Video
Zoom Video Communications (ZM -1.61%) saw its business enjoy a surge during the pandemic, but growth has since moderately sharply as the tailwind has subsided.
Even so, the company has still posted decent growth for its latest quarterly earnings and continued to generate healthy free cash flow. Total revenue inched up 5% year over year for Q3 2023 to $1.1 billion, but what was more important was that enterprise revenue climbed 20% year over year to $614.3 million. The revenue increase in this customer segment was in line with the 17% year-over-year rise in enterprise customers to 209,300.
Churn has also improved from 3.7% a year ago to 3.1% in the current quarter, and Zoom generated a free cash flow of $992.5 million for the first nine months of the fiscal year.
The company has guided for total revenue of around $1.1 billion for its fourth quarter, similar to its third quarter but around 2.7% higher than the prior year's fourth quarter.
Zoom has announced several new offerings up its sleeve at its recent Zoomtopia Investor Day. Email and calendar services will be integrated with Zoom so that users can enjoy a seamless experience, while a virtual co-working space is slated for release early next year. To support its clients better, a virtual agent will also be programmed to assist with common issues and to help resolve problems.
These new initiatives may take time to gain traction, but Zoom is on the right track to grow its enterprise customer base further and should continue to enjoy top-line and free cash flow growth as it solidifies its market leadership.
