November was a great month for the stock market, and investors can get an edge by understanding the most important trends that are driving stocks' performance. These three stocks moved the market last month and illustrate some of the most important trends that are shaping the market right now.
1. Coinbase
Coinbase (COIN 5.68%) shares charged 62% higher in November. The company reported better-than-expected quarterly results during the first week of the month. The cryptocurrency exchange benefited from strong growth in service and subscription revenue, which offset declines in transaction fees to help it deliver 14% growth over the prior year.
Coinbase was able to deliver that impressive top-line performance while recording operating expenses near the low end of its forecasts. This allowed the company to approach breakeven for the quarter, and it produced nearly $1 billion in free cash flow.
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Coinbase posted clear evidence that it is improving operational efficiency at an advantageous time. Investor optimism was also buoyed by an important regulatory development in which a panel of judges requested the SEC review a previously denied application for a Bitcoin exchange-traded fund (ETF).
The introduction of a Bitcoin ETF -- if it happens -- is expected to fuel demand for the cryptocurrency and provide validation of an asset class in the eyes of more skeptical investors. Bitcoin prices surged in the month, and Coinbase's consistent climb higher appears highly correlated with that move.
Coinbase also launched crypto futures trading for U.S. customers in November, opening the door to a new revenue stream that could grow over time. The company is taking advantage of current trends, and it's strengthening its position as a leader in a high-growth industry.
Importantly, the rallies by Coinbase and cryptocurrencies signal an increase in risk tolerance in capital markets. Momentum in the crypto markets was definitely news-driven, but that news alone probably wouldn't have driven such huge gains in a risk-averse investment environment.
2. Cloudflare
Shares of Cloudflare (NET 1.44%) surged 36% last month thanks to a strong earnings report and momentum in the cybersecurity industry. Cloudflare's quarterly revenue -- reported Nov. 2 -- climbed 32% over the prior year, driving the company's sales, billings, and earnings above Wall Street's expectations.
The company also delivered improved customer retention metrics and $35 million in free cash flow, bullish results in the face of macroeconomic headwinds. Cloudflare's guidance for the current quarter was underwhelming, but investors were able to shrug that off and remain optimistic.
Strong results from industry peers Zscaler and CrowdStrike helped build momentum among cybersecurity stocks. These companies are delivering strong growth rates and exceeding analysts' profit forecasts and investors are pleased.
Growth stocks have suffered over the past two years, as high interest rates weigh on enterprise budgets and demand for software products. However, corporate results and economic indicators are providing a variety of data points that are making investors more optimistic. That dynamic is sending valuations higher as investors' risk appetite expands.
3. Shopify
Shopify (SHOP 1.11%) shares climbed 54% in November following an unexpectedly strong quarterly report on Nov. 2. Revenue increased 25% over the prior year, spurred by expanding transaction value, merchant services revenue, and subscription revenue. The e-commerce platform's performance was even more impressive on the bottom line. Shopify improved gross margin by 4 percentage points after it sold its logistics business.
The company also slashed its quarterly operating expenses by more than 20% from the prior year. Shopify swung into profitability and produced $275 million in free cash flow for the quarter, smashing Wall Street's expectations.
These results were especially impressive in the face of growing concerns about consumer strength in a difficult macroeconomic environment. High interest rates, a softening jobs market, inflation, and limited access to credit are all combining to hurt shoppers. Those impacts were obvious in the economic indicators, as retail sales dropped in October.
Investors don't seem to care, suggesting that their economic outlook was even gloomier than recent data. Growth stocks and the retail sector outperformed the S&P 500 last month, largely due to a comprehensively strong earnings season from tech and e-commerce stocks. Short-term market performance is always dictated by shifting investor expectations, and it's clear that the outlook is improving for consumers and the economy as a whole.
