Contrary to popular belief, not all tech stocks have experienced a massive growth slowdown over the past 18 months. Even if increases slowed to a degree, some companies continued to regularly report significant revenue growth and improve bottom lines.
This is especially true in emerging tech industries such as e-commerce, fintech, and cybersecurity. Growth tech stocks like MercadoLibre (MELI 3.51%) and Zscaler (ZS 0.35%) could drive investor returns as rapid earnings increase and industry leadership strengthens their investment cases.
Let’s take a closer look at these two supercharged tech stocks and see why each is a buy right now.
1. MercadoLibre
Despite economic and regional challenges, MercadoLibre remained strong. MercadoLibre is the leading e-commerce and fintech company in Latin America. Marcos Galperin co-founded the company in 1999 just as e-commerce was taking off, giving the company a first-mover advantage.
To sell in those cash-dependent markets, Galperin developed Mercado Pago to offer payment solutions to help unbanked consumers buy on the site. This grew into its own business, and now customers can use it without buying from MercadoLibre.
Moreover, both the payments and e-commerce segments formed a synergistic relationship where one company strengthens the other. MercadoLibre has since added segments such as Mercado Envios for shipping and Mercado Credito for making loans, adding to the synergies.
Furthermore, MercadoLibre not only embraces regional challenges, but also thrives on them. Mercado Envios prospered in part because it was able to offer same- or next-day shipping in many cases. This was a service that was not widely available in Latin America until Mercado Envios was created. Likewise, Mercado Fondo serves as an investment account for Mercado Pago customers. It can protect customers from inflation through low-risk investments.
Such benefits lead to $3 billion in net income in the first quarter of 2023, 35% higher than a year ago. Much of that growth came from the overall increase in payment volume of 46%. The 23% increase in gross merchandise volume also stimulated growth.
Thanks to those increases, net income for Q1 was $201 million, up from $65 million in Q1 2022. Slower growth in operating expenses helped to increase its profit.
Finally, with MercadoLibre shares near 52-week highs, it’s probably not too late to buy. The price-to-sales (P/S) ratio of 6 makes it a relative bargain, especially compared to its 25 P/S ratio at the end of 2020. Assuming it continues on the same path, its prospects for further growth look clear out.
2. Zscaler
Like e-commerce and fintech, the need for cyber security transcends economic cycles. Security breaches can destroy business, and in an era of mobile devices and cloud adoption, the market needs new approaches to security.
Zscaler answered this call by pioneering zero-trust security. The approach assumes that every user is a potential security threat. The software considers factors such as devices, company ranking, locations and other criteria to grant access. And even when users do come in, Zscaler tends to provide as little access as possible, a factor that can reduce damage if breaches occur.
In addition, Zscaler deploys its software at the edge through Zscaler secure access service edge (SASE). This module ensures faster response times when problems arise. It also reduces latency and minimizes the need for backhauling, making for a faster and more secure user experience.
Users seem to have taken up their offer. In the fiscal second quarter of 2023 (ended January 31), revenues of $ 388 million jumped 52% higher over a period of one year. This included dollar-based net retention of more than 125%, indicating that the average long-term customer increased spending on the platform by more than 25%.
In addition, a slower pace of operating costs increases and an infusion of interest income helped the bottom line. In fiscal Q2, losses fell to $57 million versus $100 million a year ago.
Although that does not mean profitability, it shows that the company can become profitable if the rapid growth continues. The forecast of around $1.56 billion in annual sales would lead to a 43% annual increase in revenue for fiscal 2023. While that represents a modest delay, it could still mean an improving financial picture over time.
Furthermore, amid the slide in the stock, Zscaler is trading for 13 times sales, near a record low. That level could attract the buyer interest needed to help the stock recover.
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