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Ripening Buys For Your Portfolio Of The Future

Daniel Laboe

The recent market volatility and economic concerns surrounding the US-China Trade dispute, as well as Europe’s economic hurdles, have pushed investors out of riskier stocks. Stocks that aren’t currently turning a profit but have a substantial amount of long-term potential. Valuations have fallen and ripened some of these shares up for a buying opportunity.

Twilio (TWLO)

Twilio is one of my favorite AI stocks. Despite its funny name, its product offering is very sophisticated. Shares have fallen over 22% since its all-time high back in July, and its valuations have fallen to levels that I am comfortable with for a long-term play.

Twilio is a platform-as-a-service (PaaS) company that provides customers with a cloud-based programming platform, aka application programming interface (API), for digitalized communication. This interface gives developers the ability to add voice communication, messaging, video, as well as communication-based security to any mobile application, website, or other digital platform.

Twilio has developed a conversational AI interface called Autopilot that developers can manipulate to serve their needs. Autopilot allows developers to easily build intelligent IVRs, bots, and Alexa Apps that will continuously learn and modify, making them smarter with each use.

Contact centers are an optimal place for this type of AI to be implemented, typically being repetitive, and data-heavy tasks. The goal of Twilio’s Autopilot in contact centers is to seamlessly facilitate a genuine interaction between the customer and their contact, whether it be an AI for simple tasks or an agent for a real human touch.

The cloud-based “platform serves over 180 countries today, making it as simple to communicate from São Paulo as it is from San Francisco”, according to Twilio’s most recent annual report. Active customer accounts have almost tripled in the past year from 57,350 to 161,869, which the company reported in its Q2 earnings.

Twilio’s topline has been accelerating, illustrating consistent quarter-over-quarter growth since the company went public 3 years ago with a CAGR of 47%. TWLO share appreciated almost 400% since the beginning of 2018 as its product offering proves itself in the market place and sales begin to accelerate.

Currently, these shares are trading at a forward P/S of 11.1x, the lowest valuation this stock has seen since 2018. This is still no value play, but it does make for an attractive look considering Twilio is expected to demonstrate 72% topline expansion this year.  

Wix.com (WIX)

Wix is over 17% off its all-time high, which it hit following its second-quarter results in July. Analysts have been increasingly optimistic about this stock, increasing estimates and pushing WIX into a Zacks Rank #2 (Buy).

Wix.com is a subscription service that provides users with a one-stop cloud-based platform for all of their website needs. Wix is based out of Tel Aviv and has been going strong for 13 years. The company provides services to over 150 million users in 190 countries.

The platform enables anyone, no matter their technical or coding background, the tools to develop, create, and contribute. Wix’s product offering gets your business online, whether you are an artist, an entrepreneur, developer, or IT professional.

Wix Editor offers a drag-and-drop website creating software to design and edit any type of website with no coding background needed. Wix Artificial Design Intelligence (ADI) is the first-ever AI-backed program that can design a website for you based on your needs. The firm offers a much broader portfolio of products that could solve almost any website need.

Wix has built out its product offering substantially since it started back in 2006, and its customer base has grown along with it. The total user base has close to doubled, while its premium paying customer base has more than doubled.

Wix’s subscription-based model enables it to demonstrate quarter-over-quarter growth since the company went public back in 2014. The firm hasn’t seen a quarter with year-over-year growth of less than 25%, and analysts are estimating this will continue through 2020.  

Despite Wix toeing the line of profitability, the company has been able to grow its free cash flow year-over-year consistently. This creates financial flexibility that most growing firms are unable to achieve.

The company currently employs zero salespeople with the entire growth of the company occurring naturally through word of mouth, and other organic ways. Wix doesn’t need a sales team because the platform sells itself.

Competition includes tech powerhouses like Squarespace and Shopify (SHOP), both of which enhances companies’ online presence.

Wix is an innovation-driven company, with 50% of its employees being found in the R&D department. The company continues to drive out new products which further propel its product offering to the top of its space.

Sell-side analysts like this stock with the average target price being $152 or 20% above what the stock is trading at today. The recent dip in share price has created an opportunity for a long-term play in WIX.

Take Away

Risk averse investors have been running from these smaller tech companies and creating a hole in the market. These stocks of the future are beginning to ripen as they fall, and the two I mentioned above could be excellent long-term plays for your portfolio.

 

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