As we embark on a new year, many investors are looking back at the stock market's performance over the past year and what it means for the future -- and there's plenty to be thankful for. After turning in its worst performance in more than a decade, the Nasdaq Composite returned to form, rising 43% in 2023.
However, after an increase of that magnitude and the uncertainty that remains in the economy, investors are understandably asking themselves what to expect in 2024. Looking to history for insight about what could happen over the coming year reveals good news.
The Nasdaq's first full year of trading was in 1972, and since that time, in every year following a bear market recovery, the tech-centric index has generated returns of 19% on average. The range of the results varies, from just 7% in 1986 to 38% in 2013. That said, based on the data, the chances are good that the Nasdaq will book gains in 2024.
If the Nasdaq does soar in 2024, there are two tech stocks you'll want to have in your portfolio before it does.
Image source: Getty Images.
1. HubSpot: Taking CRM to the next level
HubSpot (HUBS +1.16%) is synonymous with inbound marketing, thanks to CEO Brian Halligan, who first pioneered the concept. This strategy seeks to attract potential sales leads to companies by creating valuable content that customers can find and use.
Rather than bludgeoning them with banner ads or flooding their inbox with unwanted emails, inbound marketing uses social media posts, white papers, blog posts, instructional videos, and infographics to inform potential customers and attract them to the business.
From those humble beginnings, HubSpot has evolved, providing a full line of customer relationship management (CRM) solutions for small- and medium-sized businesses. In addition to marketing, the company now offers sales, service, content management, operations, and commerce tools, all from a single dashboard. Furthermore, HubSpot has integrated artificial intelligence (AI) tools across a broad cross-section of its offerings, making users more productive and helping them generate more relevant content.
Business is good. In the third quarter, HubSpot generated total revenue that grew 28% year over year to $558 million. The company has continued to invest heavily to expand into new markets, so it isn't yet profitable but has cut its net loss to $5.5 million, down 82%. Furthermore, HubSpot continues to generate strong operating and free cash flow, which suggests consistent profits are simply a matter of time.
The solid financial growth is backstopped by respectable client metrics. Its total customer count of 194,000 increased 22% year over year, while average subscription revenue per customer climbed 3%.
NYSE: HUBS
Key Data Points
One of the most exciting aspects of the company is HubSpot's growing opportunity. Management estimates its current market opportunity at about $51 billion, increasing to $77 billion by 2028. The company is expected to generate revenue of $2.1 billion when it closes the books on 2023, which helps illustrate the magnitude of the opportunity that remains.
The stock isn't exactly cheap, selling for 9 times next year's sales, but that should be viewed in the context of its growth. Over the past decade, HubSpot has grown its revenue by 2,210%, pushing its stock up by 1,770%, so the stock is deserving of a slight premium.
HubSpot is taking its cloud-native CRM platform to the next level, and investors shouldn't sleep on this opportunity.
2. Snowflake: Extracting value from data
It once took a cadre of IT professionals and dedicated server rooms to maintain the software, data, and other computer systems necessary to run a business. However, cloud computing has caused a paradigm shift, and the digital transformation suggests this trend will continue. The cloud makes storing and accessing systems and data simpler but presents challenges as well. Gathering data from disparate sources and extracting meaningful intelligence becomes all the more difficult.
Snowflake (SNOW -2.25%) has the answer to those challenges. Not only can users store systems and data on the company's cloud-based system, but it also provides a suite of tools to gather and analyze business data, resulting in actionable information
In its fiscal 2024 third quarter (ended Oct. 31), Snowflake's revenue grew 32% year over year to $734 million, driven by product revenue that also grew 34%. While the company isn't yet profitable on a GAAP basis, Snowflake generates strong operating and free cash flow, which suggests consistent profitability is on the horizon.
NYSE: SNOW
Key Data Points
Snowflake's customer metrics further illustrate its strong foundation. Its total number of customers grew 24% year over year to 8,907. Its most profitable clients -- those spending $1 million or more in the trailing-12-month period -- grew even faster, up 52%. Additionally, its net revenue retention rate of 135% shows that existing customers tend to spend more over time.
Management expects Snowflake's growth to accelerate, forecasting revenue of $2.65 billion in fiscal 2024, an increase of 37% and is targeting revenue of $10 billion by fiscal 2029. Yet Snowflake has only just scratched the surface of its massive market opportunity, which management estimates will grow to $290 billion by 2027.
That said, investors have a lot of growth priced into Snowflake, which is selling for 17 times sales, though it's worth noting that's near the low end of its historical range. That might seem pricey, but Snowflake has expanded its revenue by more than 900% since late 2019, so I'd suggest it's worthy of a premium.
