Contrary to popular belief, not all tech stocks experienced a massive growth slowdown over the past 18 months. Even if increases slowed to an extent, some companies continued to regularly report significant revenue growth and improving bottom lines.
This is especially true in emerging tech industries like e-commerce, fintech, and cybersecurity. Growth tech stocks like MercadoLibre (MELI -1.98%) and Zscaler (ZS 0.01%) could drive investor returns as rapid revenue increases and industry leadership bolsters their investment cases.
Let's take a closer look at these two supercharged tech stocks and see why each is a buy right now.
1. MercadoLibre
Despite economic and regional challenges, MercadoLibre remained strong. MercadoLibre is the leading e-commerce and fintech company in Latin America. Marcos Galperin co-founded the company in 1999 just as e-commerce was beginning, giving the company a first-mover advantage.
To sell in those cash-dependent markets, Galperin developed Mercado Pago to offer payment solutions to help unbanked consumers buy on the site. This grew into an enterprise of its own, and now customers can use it without buying from MercadoLibre.
Moreover, both the payments and e-commerce segments formed a synergistic relationship where one business bolsters the other. MercadoLibre has since added segments such as Mercado Envios for shipping and Mercado Credito for making loans, which add to the synergies.
Furthermore, MercadoLibre not only embraces regional challenges, but also thrives because of them. Mercado Envios has prospered partially because it could offer same- or next-day shipping in many cases. This was a service that was not widely available in Latin America until Mercado Envios came about. Likewise, Mercado Fondo serves as an investment account for Mercado Pago customers. It can shield customers from inflation through low-risk investments.
Such benefits led to $3 billion in net revenue in the first quarter of 2023, 35% higher than the year-ago quarter. Much of that growth came from the total payment volume increase of 46%. The 23% rise in gross merchandise volume also boosted growth.
Thanks to those increases, net income for Q1 was $201 million, up from $65 million in Q1 2022. Slower growth in operating expenses helped to boost its profit.
Finally, with MercadoLibre stock trading near 52-week highs, it is likely not too late to buy. The price-to-sales (P/S) ratio of 6 makes it a relative bargain, especially compared to its 25 P/S ratio in late 2020. Assuming it continues on the same path, its prospects for further growth look bright.
2. Zscaler
Like e-commerce and fintech, the need for cybersecurity transcends economic cycles. Security breaches can devastate the company, and in an age of mobile devices and cloud adoption, the marketplace needs new approaches to security.
Zscaler answered this call by pioneering zero-trust security. Its approach assumes every user is a potential security threat. The software considers factors such as devices, company rankings, locations, and other criteria to grant access. And even when users get in, Zscaler tends to give as little access as possible, a factor that can mitigate damage when breaches occur.
Additionally, Zscaler deploys its software on the edge through Zscaler secure access service edge (SASE). This module allows for quicker response times as issues arise. It also reduces latency and minimizes the need for backhauling, making for a faster and more secure user experience.
Users seem to have taken to its offerings. In the fiscal second quarter of 2023 (ended Jan. 31), revenue of $388 million surged 52% higher over a one-year period. This included dollar-based net retention of over 125%, indicating that the average long-term customers increased spending on the platform by more than 25%.
Moreover, a slower pace of operating expense increases and an infusion of interest income helped the bottom line. In fiscal Q2, losses fell to $57 million versus $100 million in the year-ago quarter.
Although that does not signify profitability, it shows the company could turn profitable if the rapid growth continues. The prediction of around $1.56 billion in annual sales would lead to a 43% annual increase in revenue for fiscal 2023. While that represents a modest slowdown, it could still mean an improving financial picture over time.
Furthermore, amid the slide in the stock, Zscaler sells for 13 times sales, near record lows. That level could attract the buyer interest needed to help the stock recover.
