2022 has been a year like no other. Both of them S&P 500 and the Nasdaq Composite dipped in bear market territory, although the S&P has recovered somewhat. At the same time, 40-year high inflation, rising interest rates and economic uncertainty have hit consumers and investors alike.
Fortunately, as the old saying goes, “This too shall pass.” The stock market has recovered from all previous downturns, paving the way for the next bull market. what it does now a good time to buy shares of best-in-class companies, before the next bull run begins. Let’s look at two high-growth stocks that will benefit from a move into the next bull market.
1. Datadog: identify problems before they become a problem
The adoption of Cloud Computing is reaching critical mass, driven by digital transformation. The reliability of cloud-based systems has never been more important, with employee productivity and customer relationships at stake. Keeping systems up and running, with minimal downtime, is paramount, which is where data dog (DDOG 0.33%) comes in.
The company’s integrated platform controls cloud systems, ensuring they stay up and running. The system employs a combination of real-time analytics and monitoring services that keep an eye on servers, databases, applications, tools and services, sounding the alarm before a problem has a chance to be triggered, which could result in critical downtime. Additionally, the Datadog system helps get to the root of the problem, so it can be addressed before it recurs.
Datadog is an industry leader, but don’t take my word for it. The company was identified by Gartner in its lauded 2022 Magic Quadrant as a Leader in Application Performance Monitoring and Observability.
While other companies have struggled with slowing demand, Datadog’s business is booming. In the second quarter, it reported revenue that grew 74% year over year, accelerating growth from 67% in the prior year quarter. Datadog is not consistently profitable, but it does generate strong and growing free cash flow, proving that its losses are the result of non-cash items, including depreciation. This suggests that gains are only a matter of time.
Strong financial results were fueled by strong customer growth, as Datadog’s total customer base grew to 21,200, up 29% year-over-year. Large enterprise customers grew even faster, with those generating $100,000 in annual recurring revenue (ARR) growing to 2,420, up 54%. The company also has a loyal following that spends more with each passing year, as evidenced by Datadog’s dollar-based net revenue retention rate, which has remained above 130% for five years.
However, this could be just the beginning. Datadog generated revenue of $1.03 billion last year, a drop in the ocean compared to its total addressable market, which management estimates will be up to $53 billion by 2025. And with shares currently trading at about 15 times the next year’s sales, a bargain. compared to its three-year average of 39.4 times sales, now It’s time to buy these growth stocks.
2. Snowflake: Making fun of “subscription” services
Another beneficiary of the move to cloud computing is Snowflake (SNOW -2.05%). The company provides data warehousing, storage, and analytics, breaking down traditional information silos and bringing data together in one place. The company’s proprietary blend of data science and machine learning analyzes all types of structured and unstructured data and provides users with actionable intelligence.
Many rivals offer such services as part of an ongoing process. software as a service (SaaS) subscription, but Snowflake bucks traditional thinking and offers a usage-based model, allowing users to pay only for what they need. This distinction has attracted a large and growing customer base.
Even in the wake of macroeconomic turbulence this year, Snowflake’s earnings were exemplary. For the second quarter of fiscal 2023 (ended July 31), Snowflake’s revenue grew 83% year over year and its gross profit margin expanded. The company is also approaching profitability and management believes non-GAAP (balanced) net income could come as soon as next quarter. Additionally, Snowflake offers consistent free cash flow, which is often a precursor to earnings.
Additionally, its remaining performance obligation (RPO), or contractually obligated sales that have not been accounted for as revenue, grew 78% year over year, showing that its accelerated growth has legs.
The impressive financial results were underscored by strong user metrics, as its customer base grew 36% year-over-year, while those spending $1 million or more annually more than doubled. Additionally, customers historically spend more over time, as shown by Snowflake’s 171% net revenue retention rate.
The company has a long growth path ahead of it. Snowflake generated revenue of approximately $1.2 billion in fiscal 2022, which pales in comparison to total addressable market management estimates of $248 billion by 2026. Lowest valuation in Snowflake history.