The COVID-19 crisis crushed many stocks over the past year. Yet many “stay-at-home” tech stocks, which benefited from the rise of remote work, online education, and other at-home activities, rallied as the market dipped.
That enthusiasm could wane after the pandemic ends, but the recent wave of new infections worldwide indicate the crisis is far from over. These three stay-at-home stocks could still have room to run if the crisis deepens: Zoom Video Communications (NASDAQ:ZM), Amazon (NASDAQ:AMZN), and Fastly (NYSE:FSLY). Here’s why.
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The pandemic brought millions of new users to Zoom’s video conferencing platform, turning it into a household name. Zoom’s revenue already rose by 88% year over year in fiscal 2020, which ended in January, and its adjusted EPS surged 483%.
But in the first half of 2021, Zoom’s revenue soared 270% year over year as more people used it for remote work, online education, and staying in touch with friends and family members. More people also signed up for Zoom’s premium tiers — which remove time limits, allow more participants in each meeting, and provide cloud storage tools and other services.
Zoom’s adjusted EPS also jumped tenfold during those six months as its surging revenue comfortably outpaced its operating expenses. For the full year, Zoom expects its revenue to rise 281%-284% from the prior year, and for its adjusted EPS to increase sevenfold.
Analysts currently expect Zoom’s year-over-year revenue and earnings to rise 31% and 15%, respectively, next year. Based on those estimates, Zoom’s stock looks a bit frothy at 140 times forward earnings. But those forecasts could be too conservative if the pandemic drags on — which means Zoom could actually be reasonably valued relative to its near-term growth.
Amazon generates most of its revenue from its e-commerce marketplaces and the lion’s share of its profits from its cloud platform, Amazon Web Services (AWS). The crisis lit a fire under both businesses: More people shopped online, and companies ramped up their usage of cloud services.
Amazon’s revenue rose 35% year over year in the first nine months of 2020, with 37% growth in North America, 31% growth internationally, and 30% growth at AWS. Its earnings per share surged 68% from the prior year.
AWS is the largest cloud infrastructure platform in the world, and its higher-margin revenue subsidizes the growth of Amazon’s lower-margin marketplaces. That symbiotic relationship enables Amazon to continuously expand its Prime ecosystem, which serves over 150 million subscribers worldwide, with more discounts, free shipping options, cheap hardware devices, streaming media content, and other prisoner-taking perks.
Amazon expects its revenue to rise 33%-36% for the full year, compared to its 20% revenue growth in 2019. Analysts expect its revenue and earnings to rise 35% and 52%, respectively, this year, before decelerating next year.
But like Zoom, Amazon’s growth rates could easily top analysts’ forecasts if the pandemic continues. The stock is already reasonably valued at 55 times forward earnings, but the crisis could make it even cheaper.
Companies host websites, apps, and cloud services on “origin” servers worldwide, but the speed of those connections is ultimately limited by the server’s capacity and its physical distance from the user. To speed up those connections, companies rely on “edge” servers located closer to the user.
Fastly’s cloud platform, which runs on those edge servers, bundles together a content delivery network (CDN) for streaming media, load balancing tools, cybersecurity services, and other tools.
Big companies like e-commerce services provider Shopify, streaming music leader Spotify, ByteDance‘s short video app TikTok, and digital payments company Stripe all accelerate and secure their services using Fastly’s platform.
As a result, Fastly’s growth is accelerating as people access more of those apps and services throughout the pandemic. Fastly’s revenue rose 39% year over year in 2019, and accelerated to 47% growth in the first nine months of 2020. It faces some near-term concerns regarding a potential ban of TikTok, which accounted for 10.8% of its revenue in the first three quarters, but it still expects its revenue to rise by 44%-46% for the full year. Fastly remains unprofitable, but its losses could gradually narrow as its revenue growth accelerates.
Fastly isn’t cheap at nearly 20 times next year’s sales, but it also isn’t as richly valued as some more recent tech IPOs. Like Zoom and Amazon, it could also crush Wall Street’s expectations if the stay-at-home trend continues.