Many high-growth cloud stocks have crashed recently as rising interest rates have pushed investors toward a more conservative sector. As a result, the largest and oldest cloud computing exchange-traded fund, the First Trust Cloud Computing ETF (SKYY 3.29%)lost nearly one-third of its value this year.
It’s tempting to avoid cloud stocks entirely and stay in recession-fighting games in this roaring bear market, but investors can leave big money by avoiding this high-growth sector. . After all, the global cloud market can still grow at a compound annual growth rate (CAGR) of 15.7% between 2022 and 2030, according to Grand View Research.
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So today, I’m going to highlight three cloud stocks that may still be worth buying in this challenging market- Service Today (NOW 0.70%), Autodesk (ADSK 3.00%)at Twilio (TWLO 5.47%) -and explain why they are still willing to generate impressive long-term profits.
1. Service Today
ServiceNow’s cloud-based services allow companies to manage their digital workflows. Large companies that operate unstructured work patterns can deploy its services to define, manage, automate, and structure their workflows-which often saves a lot of time and money.
ServiceNow only served 602 customers in 2010, but it ended in 2021 with more than 7,400 customers-including about 80% of the Fortune 500. Between 2012 and 2021, its revenue increased from $ 244 million to $ 5.9 billion, representing a CAGR of 42.5%. It has also been profitable on the basis of GAAP (generally accepted accounting principles) over the past three years.
Last May, ServiceNow predicted it would generate more than $ 16 billion in annual revenue in 2026 – which will represent a CAGR of at least 22.1% from 2021. Last January, CEO Bill McDermott told investors that the ServiceNow can continue to “thrive in any economic environment.”
ServiceNow’s future looks bright, but its stock price is still down more than 20% this year amid wider sell-offs in high-growth tech stocks. The stock is still not cheap at 66 times forward earnings and 13 times sales this year, but its rosy outlook suggests it deserves a premium appreciation.
2. Autodesk
Autodesk develops AutoCAD, the computer-aided design and drafting application widely used by architects, engineers, graphic designers, city planners, and other professionals. It also provides other software for the construction, manufacturing, and media markets.
Over the past decade, Autodesk has converted its desktop software into cloud-based services-locked to its users using sticky subscriptions. Between fiscal 2012 and 2022 (which ended this January), its revenue grew at a steady CAGR of 7% and doubled from $ 2.2 billion to $ 4.4 billion.
Autodesk will earn again in fiscal 2020, and its adjusted earnings per share (EPS) will increase by 45% in fiscal 2021 and 25% in fiscal 2022. For fiscal 2023, it expects its revenue to increase by 13% to 15%. , and for adjusted EPS to rise 27% to 31% – even after getting the $ 40 million impact (about 3% of its annual revenue) from the suspension of its sales to Russia.
Autodesk’s stock price has dropped nearly 40% over the past 12 months as the bulls have lost appetite for cloud stocks, but it seems reasonable value at 27 times forward earnings and eight times sales this year. .
3. Twilio
Twilio’s cloud-based platform handles text messages, voice calls, and other communication-based content for mobile apps. Instead of building those features from scratch-which can be buggy, time-consuming, and difficult to measure as an app gets more users-developers can simply outsource them to Twilio using a few lines of code.
Twilio has grown like grass since its public debut in 2016. Between 2016 and 2021, its annual revenue increased from $ 277 million to $ 2.84 billion, representing a CAGR of 59.3%, due to the total number of active customer accounts increased from 36,606 to 256,000.
Twilio acquired several companies after its IPO, but it still expects its organic revenue-excluding future acquisitions-to continue to grow more than 30% annually in the “next few years. “
That’s an impressive outlook for a stock that is trading at just four times sales this year.
Twilio stock has lost more than three-quarters of its value over the past 12 months as investors are concerned about declining gross margins and continued losses. It became profitable on a non-GAAP basis from 2018 to 2020, but it reaped another disappointing net loss in 2021.
But on the bright side, Twilio still expects its gross margins to rise from today’s low 50s to more than 60% as economies of scale enter. Twilio may stay in the penalty box this year, but it could still generate impressive profits in the future if it finally stabilizes margins and minimizes its losses.