The market correction has sent many growing companies with bright futures down to valuation levels that haven't been seen in years. This is a rare opportunity to find deals for top growth stocks that can fuel your long-term returns.
Two areas of the economy that will only gain importance in coming decades are e-commerce and cloud network security. Shopify (SHOP 3.33%) and Cloudflare (NET +1.40%) are leaders in these respective markets that would make great long-term investments in 2023.
Both stocks trade below $50 per share right now, making them affordable for a new investor to get started with just one share.
NASDAQ: SHOP
Key Data Points
Shopify
Shopify serves as the operating system for millions of businesses of all sizes. The company experienced rapid growth before the pandemic as small merchants saw its platform as the answer to selling online to win more customers. With pre-pandemic revenue growth consistently above 40% per year, investors bid the stock to astronomic valuation levels.
The pandemic caused revenue growth to spike even higher as online shopping activity surged. But the subsequent reopening of the economy has slowed Shopify's momentum. In a bear market that has been particularly rough for growth stocks, Shopify shares have plummeted. On top of the slowing growth, Wall Street has been worried about slowing consumer spending and increasing competition. Amazon, for example, is allowing merchants to use the company's fulfillment centers to offer free Prime shipping on their own websites.
However, these concerns underestimate Shopify's own competitive advantages with its feature-rich platform. In the third quarter, revenue growth accelerated to 22% over the year-ago quarter, which looks strong in a challenging economy. The company saw improved growth while investing to expand its services globally, in addition to growing its logistics capacity to handle shipping for merchants as well.
Over the last several years the company has continued to grow its ecosystem, going from an operation that helps small businesses set up online storefronts to one that can service more complicated needs, such as lending capital (Shopify Capital), task automation (Shopify Flow), point-of-sale solutions, and business-to-business sales. As it adds new services, Shopify is becoming an unstoppable e-commerce services provider.
Shopify still has tremendous growth opportunities too. The global e-commerce market is expected to reach over $7 trillion by 2025, according to eMarketer. As retail brands increasingly start selling directly to consumers, Shopify should be able to win more merchants and grow into a much larger business than it is today. This is why the stock is a great buy at these discounted share prices.
NYSE: NET
Key Data Points
Cloudflare
Cloudflare is a content delivery network (CDN) that offers secure, fast connections for enterprises. Online media companies rely on Cloudflare to provide secure and high-quality streaming experiences to consumers. Overall, the company ended the third quarter with 156,000 paying customers, including a third of Fortune 500 companies.
The global CDN market is estimated at over $15 billion, according to Grand View Research, and it's expected to grow 23% annually through 2030. Companies are looking to Cloudflare's software-based CDN to lower the costs and complexity of managing their own network hardware. This, and the tremendous growth of data sent over the internet, are key factors driving the adoption of CDNs.
Cloudflare operates as a subscription-based service, which can work to its advantage in the current environment. While the bumpy economy has started to pressure corporate spending, Cloudflare still reported revenue growth of 47% year over year in the third quarter, which speaks to its ability to save companies money.
There are other factors driving growth as well. For example, with more companies adopting a work-from-anywhere policy, it's imperative that businesses use secure network connections for their applications, and that will remain a high priority for many years to come no matter what's happening with the economy.
On that note, Cloudflare is working with Microsoft's Azure cloud services business to make it easier for customers of both companies to deploy Zero Trust security solutions. This should further fuel Cloudflare's momentum with Fortune 500 companies, which have been a key source of growth over the last few years.
With Cloudflare continuing to post robust growth on the top line, the stock will surely recover, and it has good prospects for market-beating gains over the long term.
