Estimated read time: 4 minutes
Publication date: 9th Mar 2021 12:39 GMT+1
Investors are concerned over rising bond yields, frothy valuations, as well as high-interest rates, and this has driven markets lower in the last few trading sessions. While the S&P 500 is down 3.4% from record highs, the tech-heavy NASDAQ has declined by 10%.
The sell-off was driven by technology stocks that have been hammered in 2021. The tech sector was the top-performing vertical in 2020 which resulted in steep and unsustainable valuations.
Here, we look at three growth stocks in the tech sector that have lost significant market value and should be attractive buys for the long-term contrarian investor.
Roku stock is trading 30% below record highs
The first stock on this list is Roku (NASDAQ: ROKU), a leading platform for video-streaming services. Shares of Roku are trading at $327 which is 30% below its record high. However, it remains one of the growth companies that you need to look out for in 2021 and beyond.
In the December quarter, Roku increased net revenue by 58% year over year while active accounts were up 39% as the company added 5.2 million users on a sequential basis. Its Platform revenue soared 81% year over year and accounted for 72% of total sales. This business also has high gross margins of 63.8%.
Comparatively, the Player segment that accounted for 28% of total sales in Q4, saw revenue growth of 18%.
Roku sales were $650 million in Q4 with adjusted earnings per share of $0.49. Comparatively, Wall Street forecast the company to post revenue of $619 million and a loss of $0.05 per share.
The Trade Desk
Shares of ad automation platform The Trade Desk (NASDAQ: TTD) were up a staggering 250% in 2020. It's now slumped 30% from record highs. The company is a solid long-term pick as the shift towards digital advertising continues to accelerate driving top-line growth for TTD.
The connected TV (or CTV) space is also expected to act as a massive tailwind for the company. During the recent earnings call, company CEO Jeff Green confirmed that ad spending on the Trade Desk platform hit a record of $4.2 billion in 2020, a rise of 34% year over year.
In Q4, CTV spending doubled as enterprises increased spending at an incremental rate to take advantage of the time spent by customers on digital platforms. In Q4, TTD sales were up 48% at $320 million. Revenue growth accelerated from the 32% rise reported in the September quarter. Adjusted EBITDA also soared to $153 million, indicating a healthy margin of 48%.
Zoom Video (NASDAQ: ZM) was also one of the top-performing stocks in the last year. It touched a record high in October and has since lost close to 50% in market value to currently trade at $311 per share. Zoom provides cloud-based communication and collaboration tools. As people were forced to work from home amid the pandemic, the company experienced a staggering surge in enterprise demand in the last 12-months.
In the fiscal fourth quarter of 2021, Zoom sales were up 369% year over year at $882.5 million, easily beating Wall Street's revenue estimates of $812 million. The company attributed its stellar top-line growth to an increase in its customer base and expansion of its services for existing customers.
In fiscal 2021, Zoom Video sales were up a staggering 326% to $2.65 billion. Zoom ended the fiscal year with 467,100 customers that have over 10 employees, indicating a rise of 470% year over year. Over 1,644 customers contributed more than $100,000 in annual sales, up 156%.
Driven by this envious growth, Zoom’s adjusted operating income soared 839% to $361 million in Q4, indicating an operating margin of 41%. Adjusted net income was also up 713% at $365.4 million or $1.22 per share.
The final takeaway
Despite the pullback in stock prices, Zoom Video is up by 401% since its IPO. Comparatively, since going public TTD and Roku have surged an astonishing 2,160% and 1,290% respectively. While it might be difficult to replicate these gains, all three companies are well poised to beat the broader markets in 2021 and beyond. At least you could also try to trade options on these stocks as such movements would usually increase the implied volatility of such underlyings.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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