The stock market right now has more than its share of beaten-down companies of all sizes in all industries, but few have had as rough a 2022 as technology growth stocks.
After a lengthy bull run that saw stock prices skyrocket and company valuations get super inflated, the market is feeling a bit deflated -- at least for now. Nobody can say when, but investors can be confident that a bull run will eventually return (they always have in the past). When it does, you'll be happy you gave these two growth stocks a closer look before 2023 got underway.
1. Snowflake
Snowflake (SNOW 2.69%) is a data warehousing platform and analytics tool that allows customers to combine and analyze cloud data from Amazon, Alphabet's Google, Microsoft, and other companies' cloud services. It might sound relatively simple on the surface, but Snowflake's tools are powerful and manage complicated tasks to make life easier for many businesses dealing with cloud infrastructure.
After a hot initial public offering (IPO) that saw its stock price rise over 60% from September to December 2020, Snowflake stock is now down over 40% from its IPO price. Looking past its stock price, it remains a company with impressive metrics and lots of potential.
In its fiscal 2023 third quarter (ended Oct. 31), it brought in $557 million in revenue, which was up 67% year over year. The company now has 287 customers generating at least $1 million in revenue each, and its net retention rate is 165%, meaning customers are spending 65% more each year.
Snowflake reported a $206 million loss in its third quarter, so there's a sizable gap in profitability, but management says that is because the company is focused more on growing revenue than on profit. The chart below shows revenue growth is definitely heading in the right direction. Trailing 12-month revenue was $1.86 billion.
Data by YCharts.
Management projects Snowflake's total addressable market will be around $248 billion by 2026, so it's barely scratching the surface of its potential. With data warehousing, engineering, cybersecurity, data science, machine learning, and the like, there's significant market opportunity for Snowflake. And it helps that it consistently brings on household-name customers, including Capital One, Adobe, Comcast's NBCUniversal, Instacart, Elevance Health (formerly Anthem), and many more.
Since Snowflake uses a consumption-based business model, it should be more attractive to businesses that want to test and use its services, but don't want to make huge financial commitments given economic conditions and uncertainty. The stock will likely continue to face volatility through 2023, but for long-term investors who can stomach this volatility and focus on the potential, now could be the time to begin (or increase) your stake in the company.
2. SentinelOne
In today's business world, cybersecurity is no longer a luxury for many companies. Where before, certain industries like banking and energy were more likely to deal with cybersecurity threats, the progression toward a digital-dominant world has created a situation where businesses of all types are having to address cybersecurity risks.
Not only can cyberattacks permanently ruin a company's reputation with customers, but they're also expensive. Even the costs for small businesses from a successful attack can result in six- to seven-figure damages. The average cost of data breaches has increased by over 160% in the past 15 years, and it's expected to grow 15% year over year for the next few years. This spells trouble for most businesses, but it spells potential revenue for SentinelOne (S 3.47%). SentinelOne is a cybersecurity company that relies on artificial intelligence (AI) for cyberattack detection, making it more accurate, faster, and able to defend on a greater scale than humans can.
SentinelOne's stock price plunged this year as investors generally flocked toward more-stable, profit-producing stocks and away from unprofitable growth-focused companies. But those with a long-term investment outlook might be willing to put aside short-term profit in consideration of customer growth and retention potential.
In its fiscal 2023 third quarter (ended Oct. 31), SentinelOne grew its total customers by 55% year over year, and customers with annual recurring revenue (ARR) of more than $100,000 grew 99% year over year. The company's 134% net revenue retention might be even more encouraging, though. If customers are going to be spending more money over time, it makes sense to prioritize acquiring them over rushing to profitability (although CEO Tomer Weingarten says profitability should be there by 2025).
Data by YCharts.
Regardless of macroeconomic conditions, companies likely won't be cutting their cybersecurity budgets. SentinelOne's revenue growth is impressive, and it's showing no signs of slowing. With its stock price off more than 80% from its November 2021 high, this stock might just be too good to pass up for long-term investors.
