In June, the consumer price index (a measure of inflation) rose 5.4% year-over-year, the highest jump since August 2008. As inflationary pressures begin appear more durable than expected, market volatility could increase in the short term. The three main American indices – the Nasdaq Composite, the S&P 500, and the Dow Jones Industrial Average all retreated slightly on this recent inflation news.
While the United States Federal Reserve underlined its commitment to supporting the economy by keeping interest rates low in its recent monetary policy report to Congress, a small market pullback triggered by the inflation report could prove to be an opportunity for savvy investors. If you have $ 5,000 that you don’t need to use to pay your bills, then investing for the long term in the following stocks could make you a lot richer in the second half of 2021 and beyond.
Image source: Getty Images.
Cloudflare (NYSE: NET) is a leading player in content delivery networks and a cybersecurity company. The demand for Cloudflare’s advanced computing (data and compute moved from a centralized data center to a localized data center) and security services is increasing due to the growing adoption of enterprise architectures based cloud, Internet of Things (IoT) devices, and telecommuting.
Unlike larger CDN players such as Akamai Technologies and Flagship networks, who have opted for a hardware-centric network approach, Cloudflare has opted for a cheaper and more scalable software-defined network (SDN) model.
Cloudflare’s total addressable market (TAM) is expected to grow from $ 72 billion in 2020 to $ 100 billion in 2024. The company’s freemium marketing strategy has also proven extremely successful. Cloudflare offers its CDN services for free to users and small businesses and only charges for upgrades and premium features. The feedback generated by this user base is then used to refine the service, which is then sold to larger companies. Finally, the freemium model also allowed developers to experiment with the company’s services. Since much of enterprise software purchases are driven by developer preferences, this strategy can further help drive Cloudflare adoption among enterprise customers.
Since 2016, Cloudflare has managed to increase its annual revenue by approximately 50%. The company’s net dollar retention was 123% in the first quarter (ending March 31), implying that the same group of customers spent 21% more than in the same quarter a year earlier. . This metric highlights the success of the business model of landing and expanding the business.
Cloudflare is trading at a rich valuation of 69.61 times sales over 12 months, although it is not yet profitable. However, in the context of a solid business strategy, a partnership with NVIDIA (NASDAQ: NVDA) To bring artificial intelligence capabilities to its state-of-the-art system and quickly improve its finances, the stock can prove to be an attractive buy for retail investors, even at these high levels.
2. Crowd strike
Endpoint leader (devices connected to a private and public network) and actor in application workload security CrowdStrike Holdings (NASDAQ: CRWD) has benefited greatly from the growing demand for cybersecurity services due to the digitization initiatives accelerated by the pandemic. Most changes in consumer and workforce behavior will persist even in the post-pandemic era.
With its CrowdStrike Falcon cloud-based real-time protection platform and Software as a Service (SaaS) business model, the company appears well positioned to capture a significant share of the global cybersecurity market. In turn, this market is expected to grow from $ 217.9 billion in 2021 to $ 345.4 billion in 2026. Indexing over 6 trillion events per week, CrowdStrike Falcon becomes even more resilient and efficient due to strong network effects.
The SaaS model allows customers to start a service at low initial cost and implement it in a short period of time. CrowdStrike’s high recurring revenue base also helped ensure significant revenue visibility. In the first quarter of fiscal 2022 (ending April 30), CrowdStrike reported a 74% increase in its annual recurring revenue (ARR) to $ 1.19 billion.
CrowdStrike was successful in acquiring new customers, as evidenced by the 82% year-over-year jump in customer subscriptions to 11,420 at the end of the first quarter. The company is targeting a 54% to 56% year-over-year increase in fiscal 2022 revenue. CrowdStrike has a strong balance sheet with $ 1.68 billion in cash and cash equivalents and debt long-term lower of $ 738 million. The company’s free cash flow in the first quarter increased 34.48% to $ 117 million. Although the company is not yet profitable, the quarterly gross margin has increased by 455 basis points over the past two years.
CrowdStrike is trading at a high multiple of almost 59 times sales over 12 months. However, with a robust product offering and a strong financial position, it still offers an attractive risk-reward proposition to retail investors despite fierce competition in the cybersecurity arena.
Image source: Getty Images.
Social media platform Pinterest (NYSE: PINS) Offers visual recommendations, inspiration, and answers to user search queries in the form of videos, photographs, infographics, and other rich content. The company has an effective targeted advertising strategy: personalized ads are presented to the right user at the right time, making the ads appear to be relevant content. Additionally, Pinterest’s user base has high purchase intent and is already motivated: 85% of users say they search Pinterest when starting a new project, making it a preferred platform for advertisers. as well as for e-commerce partners.
The company’s partnership with Shopify (NYSE: SHOP) has expanded Pinterest’s product catalog and dramatically increased its advertising and social commerce opportunities. As more and more products and ideas are displayed on the platform, its user base also grows, which in turn attracts more merchants and advertisers. This strong network effect should translate into solid growth for the company in the years to come.
Pinterest demonstrated a strong improvement in operational and financial metrics over the past quarter. At the end of the first quarter (ending March 31), Pinterest’s monthly active users (MAUs) were up 30% year-over-year to 478 million. The company’s average revenue per user (ARPU) in the first quarter jumped 34% year-over-year to $ 1.04. Revenue climbed 78% year-on-year to $ 485 million, while the net loss declined 85% year-on-year to $ 21.67 million.
Trading at 23.75 times sales over 12 months, Pinterest looks pretty expensive. Investors are also concerned about the anticipated deceleration in the growth rate of its MAUs in the second quarter (ending June 30). However, there remains a significant gap between its first quarter US ARPU of $ 3.99 and the international market ARPU of $ 0.26. With international markets accounting for nearly 80% of Pinterest’s MAUs, increasing monetization here would be a huge opportunity. The company is well positioned to take advantage of this opportunity with its strong balance sheet ($ 2 billion cash and cash equivalents and no long-term debt). In this context, Pinterest could prove to be a very attractive long-term investment for retail investors.
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Manali Bhade does not have a position in any of the stocks mentioned. The Motley Fool owns stock and recommends Cloudflare, Inc., CrowdStrike Holdings, Inc., Nvidia, Pinterest, and Shopify. The Motley Fool recommends the following options: $ 1,140 long calls in January 2023 on Shopify and $ 1,160 short calls in January 2023 on Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.