Investors appear to be optimistic about the stock market's prospects in 2023 after a woeful 2022. At least that's the case if you believe a recent survey of over 2,000 retail investors spread across the U.S., Europe, and Asia conducted by U.K.-based investment insights provider Finimize. The assertion doesn't seem all that surprising when considering the signs of cooling inflation and the increased discussion of a potential pivot on rate hikes by the Federal Reserve this year.
The survey suggests that 65% of the respondents plan to continue to invest in 2023, and 29% are likely to add to their stock positions. Just 1% of respondents expect to exit their investments. Additionally, 80% of the respondents expect the stock market sell-off to be over within six months. All that bodes well for a potential end to the bear market this year.
There's also the fact that history suggests that the stock market tends to bounce back strongly after a bad year. Of course, past performance isn't an indicator of how the future will unfold. Still, investors may want to be aware of a few companies that could supercharge their portfolios in case a bull market does arrive in 2023. Snowflake (SNOW +4.49%) and Block (SQ +3.69%) are two such names that could soar in a 2023 bull market. Let's look at the reasons why.
1. Snowflake
Snowflake is a cloud platform provider that offers multiple solutions to customers that include data mining, data lakes, and data warehousing, among others. Its platform allows customers to convert unstructured, structured, or semi-structured data into actionable insights and predictions, and even monetize the data.
NYSE: SNOW
Key Data Points
There is solid demand for these offerings, and Snowflake's quarterly results are proof. The company's revenue in the third quarter of fiscal 2023 (for the three months ended Oct. 31, 2022) increased 67% year over year to $557 million. Snowflake's healthy growth was driven by growth in the company's customer base, as well as an increase in spending by customers on its offerings.
The company saw a 34% year-over-year spike in the total number of customers last quarter to almost 7,300. The number of large customers -- meaning those who have spent over $1 million on its products in the past year -- increased at a much faster pace of 94%. Snowflake also reported a solid dollar-based net retention rate of 165% last quarter. This metric compares the spending by Snowflake's customers during a particular period to the spending by the same customer cohort in the year-ago period, so a reading of over 100% means that customers are spending more money on its platform.
Snowflake is expected to finish the current fiscal year with 68% revenue growth to just over $2 billion. Its top line is expected to jump 46% in fiscal 2024 to $3 billion. However, the company may clock faster growth. That's because Snowflake had $3 billion worth of remaining performance obligations (RPO) at the end of the previous quarter, an increase of 66% over the prior-year period.
The metric refers to "the amount of contracted future revenue that has not yet been recognized." Snowflake expects to recognize 55% of its RPO balance over the next 12 months, suggesting that the company may already have secured more than half of the revenue that analysts are expecting from it in the next fiscal year.
Also, as Snowflake expects its total addressable market (TAM) to hit a whopping $248 billion in 2026, there is a lot of room for the company to attract more customers and sustain its impressive momentum in the next fiscal year and beyond. Not surprisingly, analysts anticipate massive earnings growth from Snowflake in the future.
SNOW EPS Estimates for Current Fiscal Year data by YCharts
In all, Snowflake should be able to keep growing rapidly, which is why the stock could shoot higher if a bull market does arrive in 2023. Investors, however, should note that Snowflake still trades at an expensive 21 times sales despite crashing 60% in the past year -- but this tech stock could justify its expensive valuation by maintaining its outstanding growth.
2. Block
Fintech specialist Block (formerly known as Square) also took a big beating on the stock market, and it lost over half of its value in the past year. That's not surprising, as the plunging price of Bitcoin in 2022 and the FTX collapse have rubbed off negatively on Block's stock price. However, a closer look at Block's key businesses indicates that the company should have enough catalysts to drive impressive growth in 2023 and beyond.
NYSE: SQ
Key Data Points
Block's Cash App ecosystem, for instance, recorded 12% year-over-year growth in the third quarter to $2.68 billion, while gross profit grew at a faster pace of 51% to $774 million. This shows the growing adoption of the company's mobile payments service, which is driven by the steps Block took to boost its growth.
For instance, the Cash App can now be used on e-commerce sites that are outside the Square network. Users can now make payments on sites that aren't within the Square online merchant partner network. It is also worth noting that more Cash App users are opting for the Cash App card, which enables the company to generate additional revenue streams through fees and other services.
More specifically, Block witnessed a 40% year-over-year increase in Cash App Card activations last quarter to 18 million. Given that Block sees a total addressable market worth $70 billion for the Cash App, this business still has a lot of room for growth in the short and the long run.
Meanwhile, the company estimates a $120 billion total addressable market for its Square ecosystem thanks to the growing adoption of payments software and online loans and financial services. The Square ecosystem clocked $1.77 billion in revenue in the third quarter, an increase of 27% over the prior-year period.
More importantly, the company is expected to clock 15% annual earnings growth for the next five years. Given that Block stock is trading at just 2.2 times sales right now, compared to its five-year average earnings multiple of 8, investors are getting a good deal on this potential winner that they may not want to miss.
