Many tech stocks have easily weathered the COVID-19 crisis this year, as stay-at-home trends have boosted the use of cloud services, streaming media, social media, e-commerce services and remote working tools. The techie Nasdaq the stock market index has increased by 40% this year while S&P 500 advanced by only 15%.
But with so many tech stocks trading near all-time highs, investors might be tempted to avoid this hot sector. Investors should absolutely avoid paying too much for overheated stocks like Snowflake – but they should still consider buying reasonably priced tech stocks that still have room to run.
Let’s take a look at three tech stocks that are expected to remain solid buys for 2021 and beyond.
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1. Netflix
Netflix (NASDAQ: NFLX) increased its paid subscriber base 23% year-over-year to 195.15 million last quarter, making it by far the largest premium video streaming platform in the world.
Its sales and profits grew 25% and 73% year-over-year, respectively, in the first nine months of 2020. Its free cash flow (FCF) also turned positive in the first. quarter and increased sequentially in the second and third quarters.
Netflix expects both revenue and subscribers to grow about 20% year over year in the fourth quarter. Analysts expect its revenue and profits to grow 24% and 52% for the full year, respectively.
Much of Netflix’s growth can be attributed to the pandemic, which has caused people to stay home and stream more videos. Its production of original content has also not been significantly disrupted by the pandemic, while major Hollywood studios have struggled to delay productions and releases.
Analysts expect Netflix’s revenue and profits to grow 18% and 44% respectively next year. He will face tough comparisons as the pandemic passes, but he is expected to stay far ahead of his rival Walt disneyDisney + ‘s streaming service, which reached 73.7 million paid streaming subscribers in the last quarter.
Unlike Disney, AT&T, and many other streaming service providers, Netflix’s streaming platform still remains profitable. Netflix’s stock may not look cheap at 57 times earnings eventually, but its scale, diverse portfolio, and robust growth rates easily justify this slight premium.
2. Snap
Breakof (NYSE: SNAP) Social platform Snapchat increased the number of daily active users by 18% year over year to 249 million in the third quarter. This robust growth rate thwarted the idea that Snapchat was losing users Facebookis Instagram, ByteDanceTikTok and other social platforms.
Image source: Getty Images.
Snap’s average revenue per user was also up 28% year-over-year in the quarter, as its growing ecosystem of lenses, videos and games attracted more users. It also remains the number one social network for American teens, according to Piper sandlerTikTok’s latest survey, while TikTok ranks second and Instagram ranks third. The average price of Snap ads also continues to rise, thanks to Snapchat’s popularity among Gen Z and Millennial users.
Snap’s revenue grew 38% year-over-year to $ 1.6 billion in the first nine months of 2020, and its adjusted EBITDA loss increased from 245 million dollars to $ 120 million. Its FCF also fell from minus $ 266 million to less than $ 156 million.
Analysts expect Snap’s revenue to grow 42% this year as its adjusted net loss narrows. Next year, they expect its revenue to grow another 42% with its first non-GAAP annual profit. Based on these estimates, Snap is trading at just over 20 times next year’s sales – significantly cheaper than many other recent tech IPOs with comparable growth rates.
Snap’s stock might remain volatile next year as it faces new challenges from Instagram and TikTok, but Snapchat could still have a lot of power in this competitive market.
3. Microsoft
Microsoftof (NASDAQ: MSFT) The stock has nearly quadrupled in the past five years as the company turned to cloud services under the leadership of a new CEO.
Satya Nadella, who took the helm in 2014, steered Microsoft towards a bold “mobile first, cloud first” strategy that reduced its reliance on desktop software, developed more mobile apps, and expanded its Office services. 365, Dynamics 365 and Azure cloud services.
These three platforms now power its commercial cloud business, which generated more than a third of its revenue in fiscal 2020 (which ended June 30). Azure, the fastest growing division in the segment, is now the second largest cloud infrastructure platform in the world after Amazon Web Services (AWS).
Nadella also grew Microsoft’s Surface business, which sparked the development of new form factors in the sluggish PC market, and strengthened its gaming ecosystem with new Xbox consoles and subscription services.
Microsoft’s revenue and adjusted EPS grew by 14% and 21%, respectively, in fiscal 2020. The pandemic limited Microsoft’s software sales to business customers, but this weakness was easily offset by its cloud and gaming businesses – both of which have benefited from home trends.
Analysts expect Microsoft’s revenue and profits to grow 11% and 18% respectively this year. The action may look a little foamy at 32 times earnings, but several catalysts – including the Xbox Series X and S, Azure’s continued expansion, and the rebound in the PC market – could justify the premium. Its low cash dividend payout ratio of 31% also gives it ample opportunity to increase its paltry yield by 1% in the future.
