2 leading tech stocks to buy in 2022 and beyond
If you are just starting your investment journey, a good place to start is to reach out to leading companies in their respective industries. The tech sector is teeming with stocks that have generated fantastic returns for investors over the past decades, making it a good hunting ground for finding more quality companies to add to your portfolio.
Two leading tech stocks that can help strengthen your portfolio in 2022 and beyond are Spotify (NYSE: SPOT) and Wix.com (NASDAQ: WIX). Here’s why.
Spotify: the leader in audio streaming
Spotify’s service is used by hundreds of millions of people around the world. It offers funded, ad-free music listening with a library of tens of millions of songs, all from a mobile app. At the end of the third quarter, the company had 381 million monthly active users (MAU) in total and 172 million paying subscribers. These numbers gave Spotify an estimated 32% market share, which is No. 1 worldwide.
At present, Spotify is mainly known for music streaming. It is an attractive business, albeit with low gross margins (29.1% in the last quarter), which records subscriber growth of around 19% per year. However, Spotify has more ambitious plans to become a global player. audio platform, extending far beyond the music industry. The biggest part of that plan is for podcasts, which Spotify has invested heavily in over the past three to four years. This includes buying studios like The Ringer, licensing top shows like The Ringer Joe Rogan Experience and Call her daddy, and the purchase of two leading distribution platforms in Megaphone and Anchor.
To leverage these investments, Spotify has created a vibrant advertising market similar to YouTube, which is owned by Alphabetit’s google. It works like that. Podcasts owned by Spotify or distributed through Anchor or Megaphone can submit ad placements to the Spotify Audience Network (SPAN). On the other hand, advertisers send advertising clips, which SPAN then connects to those ad spaces, taking a share of the payment in the process. This opens up liquidity in the podcast advertising world, allowing even small shows to slowly start monetizing their work.
Spotify has an attractive financial growth profile. Music streaming is expected to continue to grow at a double-digit rate as the service expands to nearly every country in the world, and podcast advertising is expected to help accelerate the company’s advertising business. In the last quarter, ad revenue grew 75% year-over-year to $ 365 million, with much of that growth coming from podcasts. With SPAN still less than a year old and podcast audiences growing by around 15% year over year globally, Spotify has a chance to continue growing ad revenue at a high rate. double digits over the next five years. This may help Spotify grow its overall revenue from just over $ 10 billion (which it is currently) to tens of billions of dollars a year eventually, which would be great news for businesses. shareholders.
Wix.com: Easy-to-Use Website Builder
Wix is one of the world’s leading website builders. Third parties estimate that its market share in the world is only 2.9%, which at first glance might make you think the company is not a leader in this industry. However, it is actually third in global market share, behind WordPress (which has a dominant lead at 65% market share) and Shopify (NYSE: SHOP) (6.6% market share). However, the company is rapidly gaining ground, from just 0.6% market share in 2017 to the 2.9% it holds today.
The main activity of the company is the creation of website subscriptions. This segment reached $ 992 million in annual recurring revenue (ARR) last quarter and enjoys high gross margins of 76%. In addition to pure website development, Wix is expanding its business with three different strategies: e-commerce, payments, and specific vertical offerings.
Its ecommerce offerings are similar to Shopify where individuals / businesses with a Wix website can start selling products to visitors. The payments segment is mainly done through Wix Payments. Wix makes money on these trades by taking a share of each trade, typically around 2%. Management expects gross payment volume (GPV, or the dollar amount processed by Wix Payments) to reach $ 10 billion in 2021. Specific vertical offerings are aimed at different business niches. These include offers like Wix Fit, which helps fitness trainers, studios, and gyms manage their activities with ease.
Like Spotify, Wix stock has an attractive valuation relative to its growth profile. With a market cap of just $ 9 billion and gross profit of $ 760 million for the past 12 months, increasing 18% year on year, Wix is trading at a significant discount to competitors like Shopify. If Wix can continue to gain market share globally while expanding its new services like e-commerce and payments, that gross margin figure will likely be much higher in five to 10 years. This makes Wix an attractive tech stock to buy in 2022 and beyond.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.