In late March, the Coronavirus Aid, Relief, and Economic Security (CARES) Act — which many are calling the stimulus package — was signed into law, allocating a massive $2.2 trillion in economic relief. Tens of millions of taxpayers have already seen stimulus payments hit their bank accounts, and millions more will receive a direct deposit or a check in the months and weeks to come.
While some American consumers will need the payout to fund grocery purchases or to pay bills, some recipients are fortunate enough to have weathered this economic storm with their financial stability largely intact. Married couples that received the maximum stimulus payment of $2,400, and don’t need the money to beef up their emergency fund or for essential expenditures, should consider investing in these three top stocks, which could provide a much greater windfall over the next 10 years.
1. Fastly: Faster than a speeding bullet
Fastly (NYSE:FSLY) may not be a household name, yet consumers are benefiting from the company’s services without even knowing it. As its name implies, Fastly helps businesses speed up their internet traffic via its content delivery network (CDN). The company’s system of strategically placed data centers forms an edge cloud platform that helps supercharge the response time and delivery of customer websites, photos, videos, and other information.
While the average website user may not even be aware of Fastly’s presence, the company is quickly gaining a stellar reputation among developers and IT professionals alike, giving it a huge competitive advantage. Its customer list is a who’s-who of service providers like Shopify, Pinterest, and The New York Times, just to name a few.
Fastly’s recent earnings results give investors a glimpse of what the future could hold. For the first quarter, Fastly delivered revenue that grew 38% year over year. This was driven by its customer count that grew 13%, while its dollar-based net expansion rate clocked in at 133% — demonstrating that existing customers are spending more.
But, it’s the growth of large enterprise customers that’s really paying the bills, growing 22% year over year and nearly 6% sequentially. Spending by the average enterprise customer increased by 21%, and these big businesses now represent 88% of total revenue.
The necessity for speedy connections isn’t going anywhere, and the need will likely increase as the number of complex connections with customers increases. Fastly estimates its addressable market at nearly $36 billion. Considering the $200 million in revenue it generated last year, Fastly has a long runway for growth.
2. Datadog: This cloud provider’s no dog
There’s little doubt that knowledge is power, and as more and more companies join the cloud-computing revolution, that phrase becomes increasingly relevant. That’s where Datadog (NASDAQ:DDOG) comes in. The platform-as-a-service provider monitors activity on a customer’s cloud, not only alerting the customer to problems or issues that may result in downtime but also providing developers with useful analytics that help improve their cloud-computing operations.
Much like Fastly, Datadog doesn’t have much in the way of name recognition, but it serves an equally high-profile customer set, including the likes of Wayfair, Activision Blizzard, and Twitter.
As many companies sent their employees home to work remotely in the face of the pandemic, the need for visibility into their cloud operations became even more critical. Datadog was there to answer the call, a factor that was readily apparent in the company’s first-quarter results. Revenue grew 87% year over year — accelerating from 85% gains in the fourth quarter. The company also generated a first-time profit, a rarity for such a young, high-growth company.
The results were driven higher by an expanding number of customers with annual recurring revenue (ARR) of $100,000 or more, which grew 89%. Datadog also continued to expand its relationships with existing customers, getting them to increase spending over time, delivering a dollar-based retention rate above 130% for the 11th consecutive quarter.
Datadog’s business was already thriving prior to the pandemic, but the need for remote work has supercharged its current results — as well as its future potential.
3. Twilio: Getting the word out
Filling out our trio of low-name-recognition companies is Twilio (NYSE:TWLO), which provides developers with the building blocks to help businesses embed communication tools in their customer-facing apps. The company provides behind the scenes know-how to process calls, text messages, and video, as well as providing a host of notification and authentication services.
While that might sound confusing, it’s really quite simple. The real-time alert from your Uber driver, the order confirmation about your recently purchased Dell computer, or the text message with your favorite restaurant via Yelp are all powered by Twilio’s platform.
With the onset of the COVID-19 pandemic, it quickly became apparent that every business needed the ability to communicate with customers where they lived — which played right into Twilio’s wheelhouse — and it showed in the company’s recent results.
In the first quarter, Twilio grew revenue 57% year over year, on top of 75% growth in 2019. The company’s ability to add new accounts while leveraging its existing customer base was clear. Twilio’s active customer accounts grew 23% year over year, while its dollar-based net expansion accelerated to 143%, up from 124% in the fourth quarter.
On a conference call to discuss the results, CEO Jeff Lawson gave investors even more reason to be bullish. “Our platform provides three things the world needs right now: digital engagement, software agility and cloud-scale,” he said.
Management estimates that the company’s addressable market is about $40 billion, a far cry from the $1 billion it generated in 2019, so the sky’s the limit for Twilio.
A common thread
Eagle-eyed investors may have detected a common theme between these cloud-centric recommendations, aside from not being household names. Each is something of a high-risk, high-reward proposition. Like many high-growth young companies, these are by no means cheap. Fastly, Datadog, and Twilio are selling at 13, 18, and 37 times forward sales, respectively — when a good price-to-sales (P/S) ratio is between 1 and 2.
Additionally, only Datadog is currently profitable, as each of these companies is spending heavily to gain market share, having determined that the lifetime value of each new customer far outweighs the current cost of acquisition.
The potential for continued robust growth increases the likelihood that these stocks could make investors a fortune over the coming decade.