Twitter Inc (TWTR) as a growth play? Dead. Part-time CEO Jack Dorsey has had to clean the house completely, user growth is abysmal, and the company seems to be flailing to find anything to turn its fortune around.
Recent rumors that renowned venture capitalist Marc Andreessen and private equity investor Silver Lake have considered buying part of Twitter stock further suggest that positive growth and Twitter stock don’t belong in the same sentence for now.
Rather than hoping for a revival to spark massive returns, investors would have a much easier time gunning after more compelling growth plays like Akamai Technologies, Inc. (AKAM) and Sierra Wireless, Inc. (USA) (SWIR).
If you’ve been following Twitter stock for any length of time, you’re familiar with some of Twitter’s issues. The platform is now complicated, with the average user confused about exactly what the platform offers and how to use it. And compared to competitor Facebook Inc (FB), Twitter has no idea how to engage its users.
These problems are only the tip of the iceberg, however. Looking at the big picture, all of the issues with Twitter stock point to just one thing: growth problems. Below is a chart that perfectly sums up the growth issues with Twitter stock.
And unfortunately, Twitter stock hasn’t been able to locate that magic wand that can turn its fortune around. Sure, it may still find it eventually, and I’m secretly optimistic that it will. But until that day, investors who are tired of waiting for Twitter stock to right itself should consider these two growth stocks.
Akamai Technologies, Inc. (AKAM)
If you’ve been using the Internet since the turn of the millennium, you’ve probably noticed that the way content is being delivered has improved infinitely. You might not know it, but Akamai has played a big part in that improvement. AKAM offers services that help speed up the delivery of online content through its content delivery network and cloud services.
And when you consider that AKAM has big names including Adobe Systems Incorporated (ADBE), International Business Machines Corp. (IBM), various U.S. governmental departments, Yahoo! Inc. (YHOO) and several others as customer, you get a glimpse of why and how AKAM is responsible for between 15% and 30% of all internet traffic.
Here’s why AKAM presents a more compelling growth case than Twitter stock.
AKAM has been delivering impressive revenue growth over the past five years. There was a slight glitch in 2013, but the company picked up again in 2014, and delivered in 2015 as well.
Speaking of profitability, which doesn’t even exist for Twitter, AKAM is running a pretty profitable company. Earnings have been consistently on the rise over the last five years too, rising from $1.07 per share in 2011 to $1.84 per share in 2014. Granted, they did slide slightly this year, but they would have risen when accounting for foreign exchange.
AKAM’s operating margin has been impressive, with 2015 operating margins of 21% being a sign of long-term sustainability in terms of profit.
Its gross margin is even more impressive, with a 66.64% gross margin in 2015. And that has pretty much been the trend with AKAM over the last five years. Having built such a great margin, AKAM can conveniently take on further growth projects without fear of becoming unprofitable.
If you’re asking how AKAM can grow even more from here, the simple answer is that the growth potentials for AKAM can be linked to the growth of the Internet. Having seen how much of the internet traffic AKAM delivers, you should expect that as the Internet grows, which it surely will, the need for Akamai’s services would increase. And being one of the premier companies in the industry will tip the scale its favor in most cases.
Sierra Wireless, Inc. (SWIR)
Put simply, SWIR is involved with connecting one machine to the other (M2M). You might have met this company through one of its products, the AirCard wireless modems. So you get the idea. But SWIR is more than just a modem maker. SWIR is a major provider of embedded wireless modules for the M2M market. Today, SWIR is more of a pure play on Internet of Things.
SWIR had positioned itself early in the M2M market by foreseeing that companies would need more than wireless modems for proper M2M delivery. They’d also need software and networking for effective M2M implementation.
However, the cost of creating such an ecosystem for connected devices would be huge, hence potentially limiting the deployment of M2M technologies. To solve that problem, when many hadn’t even known about it, SWIR created a network to help companies set up M2M communication without the cost burden.
As a testament to its connection to IoT growth, SWIR’s revenue has been on the rise over last five years, jumping from $333.18 million in 2011 to $607.8 million in 2015.
In terms of valuation SWIR trades at 1.1 times its book value, well below the industry average of 2.5, In addition, even with relatively low revenues, SWIR still trades at 0.6 times sales, compared to its industry average of 2.1.
Combine such juicy valuation with the imminent growth of IoT, from which SWIR will directly benefit, and you’d see exactly why SWIR is a better growth play than TWTR.
As of this writing, Craig Adeyjanu did not hold a position in any of the aforementioned securities.