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Over time, the US market has proven to be a powerful and cost-effective tool for building wealth for long-term investors. for example, S&P500 It achieved a long-term average annual return of about 10% before inflation.
But to take full advantage of the stock market’s compounding effect, it makes sense for investors to avoid the hype and instead invest in companies with strong fundamentals and a solid vision. Investors should also be aware that corrections are a normal part of the investment cycle and may allow them to purchase high-quality stocks at deep discounts.
Against this background, the reasons are as follows. snowflake (snow 3.49%) and Twilio (TWLO 1.16%) Growth stocks, trading at 51% and 81% discounts to their all-time highs, are a smart move right now.
snowflake
Data is the lifeblood of today’s artificial intelligence (AI)-powered digital world. Many companies consider Snowflake’s cloud-native data platform essential to their AI strategy. The company’s platform enables organizations to manage, store, and process vast amounts of structured and unstructured data across a variety of sources, formats, and systems.
Snowflake continues to benefit significantly from legacy vendors migrating data and workloads from on-premises infrastructure to the cloud. Beyond the initial migration phase, existing customers have increased their usage of the Snowflake platform over time and adopted it for new and evolving workloads. The company’s customer base has since grown to 8,907 companies as of the end of the third quarter of 2024 (ended October 31, 2023), an increase of 23.5% year-on-year. In addition to focusing on U.S. customers, the company is also working to gain traction in European and Asian markets.
Snowflake’s ability to handle unstructured and streaming data also emerged as a major competitive advantage. In Q3, consumption of unstructured data on the platform increased 17x year over year. Additionally, at the end of the third quarter, nearly 1,500 customers were also using Snowflake’s Dynamic Tables streaming capabilities.
Snowflake’s innovation engine is also running at full speed, with Snowpark being a prime example. Many customers begin using Snowpark features to write customized code in their preferred programming language that runs seamlessly on the Snowflake platform. Snow park usage is doing very well, with a 47% year-over-year spike in the third quarter and a 500% year-over-year jump in October 2023 alone. Another feature, Document AI, helps transform unstructured data into a more manageable semi-structured format for analytical processing. This is a very important feature considering that unstructured data accounts for 80% of the world’s total data.
Finally, Snowflake’s consumption-based pricing model has proven to be a spectacular success. This feature has proven especially valuable in times of economic uncertainty, as it allows clients to easily increase and expand usage.
All these tailwinds led to Snowflake’s impressive financial performance. Product revenue for the third quarter increased 34% year-over-year to $698 million. Adjusted operating margin improved 200 basis points year-over-year to 10%, driven by stronger sales and improved hiring scrutiny. Finally, the company posted a healthy adjusted free cash flow margin of 15% in the third quarter.
Given these tailwinds, Snowflake appears to be an attractive choice now, despite being down 51% from its all-time high set in November 2021.
Twilio
Twilio, a prominent cloud communications platform, helps clients seamlessly integrate multiple communication features into their applications, including text, voice, email, video, and chat. The company has emerged as a major beneficiary of the growing demand for scalable, reliable, and developer-friendly cloud-based communications solutions in an increasingly digital world.
Twilio’s cloud-based customer service center helps clients realize significant cost savings, as traditional setups require significant infrastructure investments such as office space and on-site servers. Additionally, cloud-based communication centers are more flexible and scalable to meet the evolving needs of clients. Twilio upsells multiple APIs (Application Programming Interfaces) and pre-built solutions to existing customers. This approach not only delivers increased revenue, but also deeply entrenches the platform into your client’s communication strategy.
Twilio’s focus on developing new features and functionality is also a key growth driver. The company recently completed the transition to its 10 Digit Long Code (10DLC) system for its telecommunications business. Although a challenging change, this feature improves network security and helps reduce spam, fraudulent messages, and other malicious activity. Twilio also leveraged AI to accelerate this transition and improve efficiency. Another great feature, CustomerAI Predictions, is already being used by nearly 100 customers. Customers leverage the power of predictive AI to improve audience targeting and personalize multichannel communication strategies based on the lifetime value clients generate.
Twilio has struggled in recent quarters with slowing revenue growth and a lack of generally accepted accounting principles (GAAP) profitability. However, the company is now focused on cutting costs, as evidenced by stock-based compensation expense for the first nine months of 2023, down 16% year over year to $509 million. Additionally, the company plans to make management changes to accelerate sales growth and improve profit margins. Twilio’s price-to-sales (P/S) ratio of 3.3x is well below his 12-year average valuation of 12.1x.
Despite being down 81% from its all-time high in February 2021, Twilio’s solid value proposition and bargain-basement valuation make it an attractive option today.
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