This has been a topsy-turvy year for Wall Street and the investing community. The unprecedented nature of the coronavirus disease 2019 (COVID-19) pandemic initially sent equities plunging to their fastest and steepest bear-market decline in history during the first quarter. This was followed by the quickest rally back to new all-time highs. Frankly, no one knows what to expect next.
One thing we do know is that the volatility that’s been present throughout much of 2020 hasn’t gone away. Late last week, equities suffered a substantive swoon, with the technology-dependent Nasdaq Composite losing more than 6% of its value in a two-day stretch.
The thing is, “tech wrecks” are actually a good thing — at least if you’re a long-term investor. That’s because high-quality companies generally increase in value over the long run as operating earnings and cash flow expand. If this current dip in the broader market were to turn into a full-fledged correction (i.e., an unrounded decline of at least 10% from recent highs), investors should consider taking, say, $2,000 and buying into the following three high-growth tech stocks.
Few tech stocks have captivated the attention of Wall Street in 2020 more than content delivery network and security services provider Fastly (NYSE: FSLY). Then again, the company’s monumental run from $11 in mid-March to a close as high as $116 in early August probably played a big role in that.
What makes Fastly so intriguing is just how quickly it’s become the edge cloud platform of choice for brand-name businesses. Tasked with improving the efficiency, speed, and security with which content is delivered to end users, Fastly has picked up the likes of Shopify, Pinterest (NYSE: PINS), Airbnb, Etsy, TikTok, and Twitter, as some of its most prominent customers.
The beauty of the Fastly business model is that not only are new customers increasing its breadth and boosting revenue, but it’s also seeing an uptick in spending from existing clients. Remember, as COVID-19 has pushed people out of the office and into their homes, demand for digital content has grown considerably. In Fastly’s most recent quarter, the company’s dollar-based net expansion rate accelerated to 137% from 133% in Q1 2020, implying an uptick in spending by existing customers.
Looking ahead, Fastly has a very real opportunity to more than triple its sales and push toward recurring profitability between 2019 and 2023.
Although it walks a fine line between the technology and financial sectors, payment processor and peer-to-peer payment platform operator Square (NYSE: SQ) is definitely a stock to consider buying on any significant downside.
Square’s foundational growth has been built on its processing platform, which caters to small and medium-sized businesses. Between 2012 and 2019, the gross payment volume Square’s seller ecosystem processed surged from $6.5 billion to $106.2 billion. Though it’ll undoubtedly be down in 2020 as a result of small business shutdowns tied to the coronavirus pandemic, Square has a chance at even more robust operating profits from this segment. That’s because the company is seeing a higher percentage of large businesses using its payment platform. As a fee-based business, a higher dollar volume traversing its networks would be a good thing.
However, the real wildcard here is Square’s peer-to-peer payment platform, Cash App. In 30 months, Cash App’s monthly active user (MAU) count has soared from 7 million to north of 30 million. Approximately 7 million of these current MAUs also utilize Cash Card, which functions more like a traditional debit card linked to a user’s Cash App balance. Cash App allows Square to generate revenue from merchant fees, expedited account transfers, and bitcoin exchange/investment. I expect it will soon be the company’s primary profit driver.
Another tech stock that would be very compelling if the stock market were to enter a correction is social media up-and-comer Pinterest. In my view, Pinterest is giving those folks who missed out on Facebook between $20 and $40 a chance at redemption.
The first thing you’re going to notice about Pinterest is that the company’s user growth isn’t slowing, despite the fact that it’s hit levels where Twitter’s MAUs stalled. At the end of June, Pinterest reported 416 million MAUs, which was up 116 million (39%) from the year-ago period.
What’s notable is that the vast majority of this user growth is coming from outside the United States. The 106 million net MAUs added since the end of June 2019 aren’t generating anywhere near the average revenue per user (ARPU) as U.S. MAUs. But this data also suggests that Pinterest has an exceptionally long runway with which to double its international ARPU numerous times over the next decade.
Pinterest is also in the early stages of becoming a potential e-commerce powerhouse. With 416 million users regularly sharing the products and hobbies that interest them, it makes perfect sense for the company to connect these potentially motivated consumers with small businesses that cater to their interests. Pinterest has been incorporating more video onto its platform in an effort to keep users engaged, and it partnered with Shopify earlier this year to help small businesses efficiently manage their resources when catering to Pinterest’s growing user base.
Expecting revenue to double every four years is very realistic.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sean Williams owns shares of Facebook, Pinterest, and Square. The Motley Fool owns shares of and recommends Etsy, Facebook, Fastly, Pinterest, Shopify, Square, and Twitter and recommends the following options: short September 2020 $70 puts on Square. The Motley Fool has a disclosure policy.
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