Global equity markets are suffering from a period of uncertainty that began in November 2021. A mix of high inflation, rising interest rates and geopolitical tensions across Europe has suppressed investors’ appetite for the risk, sending the Nasdaq 100 20% lower technology index and in a technical bear market.
But it’s not all bad news. For patient investors, the recent selloff could represent a long-term buying opportunity. Three Motley Fool contributors think Workiva (WK -4.94% ), Datadog (DDOG -9.38% )and To block ( BECAUSE -6.38% ) are excellent candidates to buy after the sharp decline in their stock prices. Here’s why.
A data unification center
Anthony DiPizio (Workiva): Aside from the steep 41% decline in its share price, Workiva continues to deliver strong operating results for investors. The company’s data unification platform plays a key role in the digital economy, where more organizations are embracing remote working and need innovative tools to maintain smooth workflows .
Workiva focuses on aggregating data across dozens of different applications. If a team works in Microsoft Office or AlphabetGoogle Cloud, Workiva pulls data to a central location, giving management greater visibility into employees who may be in entirely different locations. One use case for this tool is compiling regulatory documents, and Workiva currently supports more than 350 Securities and Exchange Commission forms, making it an easy tool for public companies. This is mainly why eight of the top 10 global banks use it.
But the company has also recently invested in its environmental, social and governance (ESG) reporting capabilities, as more organizations request tools to help them track their sustainability initiatives.
Naturally, Workiva is becoming more useful among larger workforces, which is why the company is growing the fastest among its highest-spending customers. In 2021, the share of Workiva’s customer base spending $300,000 or more per year increased 54% from 2020, outpacing its overall customer growth of 15%. It generated $443 million in full-year revenue, up 26% from 2020, and analysts expect the company to cross the half-billion-dollar mark for the first time ever in 2022.
Workiva is not profitable yet, as it is still investing heavily in its business to grow. For example, it spends 40% of its revenue just on sales and marketing. But the company is on a roll when it comes to changing workplace trends – more and more organizations are offering hybrid working arrangements to attract talent, making Workiva’s platform more and more important.
In fact, some data suggests that 85% of managers expect remote work to become the new norm, making the recent decline in Workiva stock an attractive entry point for the next decade and beyond. -of the.
The leader in observability continues to dominate
Jamie Louko (Datadog): Datadog shares have been on a bumpy ride since September 2021. Shares sank in January, but after a strong earnings report, the company broke. However, with the stock market seemingly going nowhere but down, stocks gave up those gains and fell 35% from their all-time highs. However, Datadog’s infrastructure performance monitoring and observability platform continues to see rapid adoption, and that hasn’t changed in the fourth quarter.
The company saw incredible revenue growth of 84% year-over-year in the fourth quarter to $326 million, driven by its large customers and expanding customer relationships. Its customers spending more than $1 million a year jumped 114% year over year in the fourth quarter, likely helped by the fact that a third of its customers were using four or more products at the end of the Q4 2021, compared to 22% in Q4 2020. The increase in engagement and usage demonstrates the major long-term tailwinds at Datadog’s back with the shift to cloud infrastructure.
Another growth opportunity that Datadog has in the future is expansion into the government sector. In the fourth quarter, the company obtained FedRAMP clearance, which means it will now be able to sell its products to government entities and public sector companies. These customers tend to have deep pockets, which means Datadog’s large customer base could continue to grow at a rapid pace.
Datadog shares are still trading at 38 times the sell – a high valuation, especially after the tech selloff. Other high growth cloud stocks like confluent slipped much further: Confluent’s price/sales multiple was in line with Datadog’s in the months leading up to the sale, and now its valuation has fallen to 22x sales. However, that doesn’t mean Datadog isn’t worth buying today. As the cloud becomes more widespread, monitoring application security and performance will quickly become indispensable for enterprises and government agencies, and with Datadog’s leadership in the field, it will likely benefit immensely in the years to come. .
Democratize financial services
Trevor Jennewine (Block): Traditionally, companies that wanted to accept payment cards worked with banks and other financial institutions to obtain the necessary hardware, software and services. But these vendors almost always bundle products from different companies, which means these systems can be difficult to implement and maintain, especially for small businesses that don’t have a large IT team. This is where Block can make the difference.
Its ecosystem of sellers is a cohesive, self-service suite of hardware, software, and services, including all the tools needed to run a business across physical and digital channels. This includes everything from point-of-sale (POS) systems and payroll software to banking products like deposit accounts and loans. Unsurprisingly, Block’s holistic approach to commerce has resulted in strong adoption. In fact, sellers using four or more Square products accounted for 38% of gross profit in 2021, up from just 10% in 2016.
Block’s Cash App ecosystem is built with a similar focus on simplicity, but is designed to help consumers manage their money. Cash App combines banking and brokerage services, allowing users to send, spend and invest money and file taxes from a single mobile app. In 2021, the number of monthly active users jumped 22% to 44 million, and more than 31% of those people now use the Cash Card (a debit card linked to the mobile app) on a monthly basis. up from 26% in 2020. This is remarkable as Cash App users generate more gross profit with each additional product they adopt.
Last year, the strength of both ecosystems helped Block achieve a strong financial performance. Gross profit soared 62% to $4.4 billion and free cash flow hit $714 million, up from $35 million in 2020. Better still, Block is well positioned to maintain that momentum. Mid-market sellers (at least $500,000 in annual sales) now account for 37% of gross payment volume, up from 17% in 2016, and this move upmarket bodes well for the Square ecosystem, demonstrating its growing importance in the commercial industry. At the same time, the Cash App ecosystem allows Block to monetize consumers through digital payments and brokerage services for stocks and Bitcoinand both should be significant tailwinds for the company.
Currently, Block is down 63% and the stock is trading at 2.9 times sales – its cheapest valuation in three years. That’s why now looks like a good time to buy some stocks.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.