What happened
There’s little question that Wall Street has a bad case of anxieties so far in 2022. Nothing is clearer than in the cloud computing space this week, when a CEO’s bullish comments led to the collapse of cloud- native stock. Nor did it help that the monthly inflation report was worse than economists predicted.
Using that as a backdrop, shares HubSpot (HUBS -2.24%) up 15.9% this week, MongoDB (MDB -5.54%) fell 14.2%, and Twilio (TWLO -4.59%) collapsed as much as 13%. At the market close on Thursday, the three were still trading lower, down 13.7%, 11.2%, and 12.4%, respectively.
E what now
Service Today CEO Bill McDermott was the chief executive who offered his prognosis on the economy and the future of tech stocks-and overall, his outlook was surprisingly bullish. While he acknowledged the challenges regarding the war in Europe and the resulting high cost of energy, he cited technology as the solution. “It doesn’t fundamentally change the narrative that technology is the only way to break crosswinds,” McDermott told Jim Cramer on a show on CNBC’s Mad Money.
McDermott’s views are not all wine and rose, noting that inflation is at a 41 -year high, interest rates are rising, and the dollar is at its strongest in more than 20 years. When the dollar is strong, goods and services are more expensive in foreign currencies, thus reducing demand in international markets. Because of those challenges, McDermott said, “The mood is not good.”
Investors took his comments because the glass was half full, selling cloud stocks in bulk.
Another factor weighing on investor sentiment is a report from the U.S. Bureau of Labor Statistics detailing inflation in the month of June. The Consumer Price Index (CPI), which measures changes in the value of a basket of products over time, rose 9.1% year-on-year, rising at the fastest rate since November 1981.
Even removing volatile food and energy prices, core CPI rose 5.9%, proving that consumers are feeling the pinch of higher prices.
What now
There is no doubt that macroeconomic factors weigh on stock prices, especially as investors consider the potential for a recession. However, for those with long -term investments, these stocks are likely to be a purchase. Investors don’t have to look further than recent results for evidence to support that theory.
Twilio’s first quarter revenue grew 48% annually. Removing its recent acquisition of Zipwhip, revenue increased by 35%. Active customers grew 14% year-on-year, and at the same time, its dollar-based net expansion rate of 127% shows that current customers are spending more. Although the company is not yet profitable, Twilio expects to achieve operating revenues beginning in 2023. Perhaps as importantly, management is confident that it will deliver organic year-over-year growth. even 30% over the next few years.
HubSpot’s first quarter results were both solid. Revenue grew 41% year-on-year, while subscription revenue grew 42%. Its customer number grew 26%, while average subscription revenue per customer climbed 12%. HubSpot is not yet profitable but generates strong and growing free cash flow, illustrating that non -cash items, including depreciation, cause losses. The company also expects to generate full -year revenue growth of 32% in 2022.
Rounding out our trifecta of strong performers is MongoDB. Its revenue in the first quarter grew 57% annually, while revenue from Atlas-its fully managed cloud-native database-rose 82%. Its customer base has grown 31% year over year, and MongoDB is also profitable on a free-cash = flow basis. The company expects to grow its full -year revenue by 35% in 2022.
YCharts data.
Each of these stocks has been dragged down by the broader market downtrend and the potential for a recession. Given the current macroeconomic conditions, there aren’t any guarantees that they won’t be at least eventually. That said, for patient investors who plan to buy and hold for many years, Twilio, HubSpot, and MongoDB represent an compelling opportunity.
Danny Vena has positions at HubSpot, MongoDB, and Twilio. Motley Fool holds positions and recommends HubSpot, MongoDB, ServiceNow, Inc., and Twilio. Motley Fool has a disclosure policy.