Investors in high-octane but equally high-valuation cloud computing stocks were welcomed on Monday with a mini-meltdown, well documented here by fellow Fool.com contributor Anders Bylund. Maybe a bunch of money managers all got into the office on Monday with to-do lists that included some selling and subsequent buying in bargain areas of the market (oil and retail, for example, went up). Or maybe individual investors all decided that 2019 has been a fantastic year so far, and it was time to take some profits. Maybe it was a little of both, or something else entirely.
Who knows, but sometimes there is as much explanation for a sell-off as there is a logical explanation for why an unprofitable — albeit fast-growing — company like Beyond Meat would increase in valuation by several hundred percent in just a few months’ time. At any rate, if you were holding on to cloud stocks over the weekend and found your holdings took as much as a double-digit haircut come Monday, two things should be true:
- You believe the cloud has years of growth left, and in fact is only just at its beginning as “edge” computing starts to take the reins; and
- You have more cash to add to your small position as you build out your final holdings over time.
My post-Monday-meltdown shopping list
Company My Purchase Price Percentage Off All-Time High Market Cap Salesforce.com (NYSE:CRM) $150.99 10% $136 billion Twilio (NYSE:TWLO) $112.27 26% $16 billion The Trade Desk (NASDAQ:TTD) $213.02 26% $10 billion Okta (NASDAQ:OKTA) $109.05 23% $13 billion Alteryx (NYSE:AYX) $118.06 20% $8 billion
Why I’m buying
When surveying the field of (mild) destruction, I tried to pick a sampling of companies from across the cloud and enterprise software sub-industry. I started with Salesforce, a stock I’ve owned for quite some time — by far the largest of this group and one that didn’t budge much, while its smaller peers tanked.
That’s likely because much of Salesforce’s recent dip had already happened. Investors have been fretting over the company’s spend-happy ways with the 2019 acquisition bill nearing $20 billion. But Salesforce’s strategy seems to be paying off. During the second-quarter report, management said it expected a reacceleration of revenue in the next couple of quarters nearing 30%. That’s quite the feat for a company the size of Salesforce, and I think it gives the relationship-management giant a clear path to becoming one of the largest tech companies in the world over the next decade or so.
I’ll admit that Twilio and The Trade Desk are two companies that took me some time to understand. I didn’t make my initial purchase of each until earlier this year, but I bought in after I understood what each of them does. Twilio is changing the way businesses communicate with their customers, offering a suite of cloud-based tools to enable digital interaction. The toolkit includes text, voice, video, email, login security, and other digital functions, all of which developers can integrate into their own apps and websites.
The Trade Desk operates a type of advertising exchange where buyers of digital ads can bid and optimize their marketing. With connected entertainment (think streaming TV and music) only increasing, Trade Desk’s connected-TV and audio segments have been growing like weeds as of late.
Both companies are making it easier for their customers to operate, disrupting the status quo in software development and ad purchasing. The results say as much. During the second quarter, Trade Desk’s revenue grew 42% year over year, while Twilio’s went up 86%.
The cybersecurity space has been a really interesting segment of tech the last few years. Cloud computing has changed the game for digital security, and it’s provided opportunity for newer upstarts to grow at the expense of many industry incumbents. One such upstart is Okta, which focuses on “privileged identity management” — ensuring that only the right people get access to data and applications within an organization. It’s a fast-growing but small piece of the whole cybersecurity pie, and Okta has quickly taken command of the segment…
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