Cloud computing has helped address several important issues that companies face, such as harvesting data, cost efficiencies, enabling remote working, and more. According to research firm Gartner, the onset of COVID-19 has accelerated this trend, and spending is forecast to reach $332.3 billion in 2021. We delve into two hot cloud stocks to buy to benefit from this tailwind.
Snowflake: Bull vs Bear arguments:
Snowflake (NYSE: SNOW) is a cloud computing-based data warehousing company backed by Warren Buffet’s Berkshire Hathaway who acquired a stake before its IPO in 2020.
It has become a go-to cloud platform since its founding in 2012 as it helps companies store and consolidate data in a single source and gain insights and share data both internally and externally.
It has roughly 4,990 customers, with 42% of the Fortune 500 as customers. It also has an awe-inspiring net dollar retention rate of 169% and a net promoter score of 71, demonstrating both its platform’s stickiness and customer satisfaction.
The company continues to grow rapidly, with revenue increasing by 109% year-over-year, reaching $254.6 million and improving gross margins of 74% in Q2 2022. The company believes that its total addressable market is in the region of $80 billion, which means there is a significant runway ahead.
Despite impressive metrics, Snowflake’s valuation has been a concern, and this remains the case, trading at a staggering 117X price to sales. On top of this frothy valuation, it is operating at a loss which was $179 million in Q2. #
Twilio: Bull vs Bear arguments:
Twilio (NYSE: TWLO) is a cloud-based platform-as-a-service business that enables software developers to use digital communication such as calls, texts, and emails to enhance the user experience.
CEO Jeff Lawson leads the company. He is one of the most admired people in tech not only by outsiders but also by colleagues with a 96% approval rating on Glassdoor and is surrounded by a diverse management team.
Twilio has been one of the beneficiaries of the migration to the cloud, and Twilio found that companies’ digital communication strategies were accelerated by an average of six years.
In Q2 2021, Twilio reported revenue of $669 million, up 67% YoY with a gross margin of 50%. The company also continues to attract new customers and now has 220,000 customers, which it continues to monetize with a dollar-based net expansion rate of 135%.
Twilio has made a number of acquisitions over the past few years successfully and expanding its market opportunity. Indicative of this is its announcement at its Signal customer conference of a new omnichannel marketing tool called ‘Twilio Engage’ built on top of Segment, which it acquired in 2020 for $3.2 billion.
Twilio faces many competitors to its solutions from smaller players such as MessageBird, while tech giant Microsoft’s Azure Communication Services also poses a threat. Twilio is also unprofitable reporting a net loss of approximately $227 million in the quarter and with lower gross margins than other software players.
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Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.