Your 2023 investing year has been pretty swell if you've been holding Nvidia in your portfolio. The stock is this year's big winner, appreciating a staggering 172% since the start of the year on the prospects of artificial intelligence (AI)-fueled growth.
But rather than skate where the puck is, why not skate to where it's going? There are other tech companies with promising futures that haven't yet gotten the recognition that Nvidia has.
This trio of Fool.com contributors has identified a triplet of hypergrowth tech stocks with tantalizing potential to beat the market moving forward. Here is why SoFi Technologies (SOFI 4.55%), Airbnb (ABNB 2.77%), and Twilio (TWLO 2.94%) should be on your radar today.
SoFi could soon be fintech's big winner
Justin Pope (SoFi Technologies): Many things have worked against SoFi Technologies since the company went public in 2021. A bear market hit technology stocks shortly after its Wall Street arrival, and the pause on repayment of Federal student loans choked off one of SoFi's best business segments. But the clouds are starting to part, and the sun could soon shine down on patient investors.
SoFi is a digital bank and fintech company that offers customers several financial products and services through its smartphone super app. Users can deposit money, save, spend, make peer-to-peer payments, invest in stocks and crypto, borrow money, and learn -- all from one place. The company's advantage over traditional banks is its digital footprint, and the app means the business can operate and acquire customers far more cheaply than banks that pay for brick-and-mortar branches.
The app-driven user experience seems to be working; the company has grown its user base to 5.6 million, including a 46% year-over-year increase in the first quarter. The U.S. population isn't growing anywhere near that quickly, so SoFi is taking customers from its competitors. Additionally, SoFi owns Galileo, a software platform that enables other companies to build fintech products. In other words, SoFi runs its business and powers many of its peers.
SOFI Net Interest Income (TTM) data by YCharts
SoFi is rapidly growing, driven by a boost in net interest income as its banking business expands and brings on more users. Bottom-line profits (net income) are trending upward, so it should be a matter of time before the company turns a profit under generally accepted accounting principles (GAAP). SoFi was a leading student loan refinancer before the pandemic, so the looming resumption of student loan payments will only boost business further. All the numbers point toward a bright future for SoFi, so now could be the time to hop on board while shares are still down nearly 74% from their high.
Airbnb: The company reshaping the real estate market through technology
Will Healy (Airbnb): Over the last few years, companies like Nvidia drove outsize growth by finding additional uses for its gaming chips. Investors profited as a relatively obscure GPU company became an AI powerhouse.
Today, a company that could drive massive growth through an industry metamorphosis is Airbnb. More casual investors might assume it is exactly like its peer, Expedia's Vrbo, since both support the vacation rental business. However, unlike Vrbo, Airbnb has leveraged tech innovations to transform parts of the real estate industry.
One approach is its extensive use of AI. The technology can vet the backgrounds of prospective guests and help Airbnb find competitive rental rates for a given property. Moreover, the power of Airbnb's brand creates opportunities. It gives prospective tenants an easy option to look for housing when a hotel does not suit their needs. Additionally, future hosts with a room or a property to lease can turn to Airbnb's customer base to find tenants.
Furthermore, it has found creative workarounds to better utilize unused properties. For example, Airbnb can help apartment tenants in a lease they no longer need by finding users to cover the rental costs. This turns what could be a significant financial liability into a source of income for a lessor.
The results show the effectiveness of its approach. Airbnb generated $1.8 billion in revenue in the first quarter of 2023, a 20% increase year over year. That is slower than the 40% revenue growth rate in 2022, but the company continues to show strength in a slowing economy. Additionally, Airbnb has turned profitable, reporting a net income of $117 million, rising from a loss of $19 million in the year-ago quarter. An increase in interest income led to the profit as it contended with $195 million in stock-based compensation expenses during the quarter.
Still, Airbnb turned profitable in 2022 on its improving financials, and the rising profits have dramatically reduced the P/E ratio to 35 times earnings. Considering that analysts forecast a 24% increase in net income for the year, investors can buy the internet and direct marketing retail stock at a low valuation.
Well-known investors are showing interest in Twilio. Is it time to buy?
Jake Lerch (Twilio): Twilio has experienced a massive fall from grace. At its peak in early 2021, Twilio's stock was priced at over $440 per share. Today, the stock trades for less than $70 a share. Yet despite this 84% drawdown, I think Twilio could be on the path to redemption. Here's why:
- Prominent investors are showing interest in the company.
- Management is cutting costs.
- The company's growth fundamentals remain solid.
Let's begin with the well-known investor interest. Cathie Wood, founder and Chief Investment Officer (CIO) of Ark Invest, thinks Twilio -- along with other software names -- is poised to bounce back thanks to the ongoing AI revolution. What's more, reports have surfaced that activist investor Legion Partners has been meeting with Twilio's management in an attempt to shake up its board of directors and streamline its operations.
Second, management has already put in place some cost-cutting measures, such as slashing 17% of its workforce in February.
Lastly, Twilio's business continues to grow -- albeit more slowly than in the boom years of 2020 and 2021. The company's active customer base has increased to more than 300,000. Meanwhile, dollar-based net expansion rate (DBNER) stands at 106% -- meaning existing customers are increasing their spending by about 6% annually.
Furthermore, Twilio's valuation looks attractive -- which might explain why activist investors are showing interest in the company. Twilio's price-to-sales ratio is 3.2 -- down from a peak of 37. Its price-to-book value is 1.2 -- remarkably low for a growth-oriented software stock.
Twilio isn't for everyone. However, its growing efficiency and stable fundamentals make it a compelling consideration for buy-and-hold investors.
