There’s no denying that the tech sector has been one of the major drivers of overall market performance since the end of the recession. In the low-growth early days, investors were attracted to tech’s ability to generate faster profits than the overall market. And leading the way were the FANGs of Facebook (NYSE:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOG, NASDAQ:GOOGL).
But lately, the FANGs have hit a bit of stumbling point. Earnings from the group haven’t been up to snuff. Amazon, GOOG and FB all missed on revenue growth and gave some mixed guidance figures for the future. As expected, investors have dumped the FANGs in a big way. AMZN’s recent drop erased roughly $215 billion in market cap alone. That’s certainly some troubling news for the FANGs and their growth stories.
Perhaps the best course of action may be to ignore than FANGs — odds are you already own a ton in your ETFs and mutual funds anyway — and take a bet on some smaller and faster-growing tech stocks. Here, investors may get a better deal, bigger bargains and real growth.
With that, here are five tech stocks to help you forget the FANGs.
Veeva Systems (VEEV)
Besides tech, healthcare has been one of the best places to find returns. So, investors looking for a replacement for the FANGs should look at where these two market segments meet. And that would be at Veeva Systems (NASDAQ:VEEV).
VEEV is an enterprise software company. Using cloud computing and a SaaS model, Veeva produces applications to the life sciences/biotech industry, drug producers as well as hospitals. This includes everything from collecting trial data to applications for customer management for pharmaceutical companies. If that sounds familiar, it should. VEEV is similar to both Workday (NASDAQ:WDAY) and Salesforce (NASDAQ:CRM) in its features and applications. Two great FANGs replacements in their own right.
And that’s a great position to be in.
VEEV continues to rack up revenue and customers for its valuable suite of applications. Sales jumped a whopping 25% year-over-year for the second quarter. More importantly, subscription revenue also jumped by double digits. That has only increased margins at the firm and allowed to record a nearly 28% year-over-year increase to its profits. This is some torrid growth. The best part is that VEEV still has plenty more opportunities to add additional customers and expand.
With that sort of growth, Veeva Systems remains one of the best ways to forget the FANGs. That’s assuming it doesn’t get bought out first.
Go onto any website these days, from shopping to banking, and odds are you’ll see one of those chat boxes that allows you ask questions or find out more about a product or account. Future FANGs stock Twilio (NASDAQ:TWLO) made that happen.
Twilio designs cloud-based communications platforms that allow developers to send automated phone calls, text messages and other communication functions. Basically, developers take TWLO’s APIs and apps, chuck them into their code and instantly get the ability to add these functions. It seems almost too simple. But it is and that’s why TWLO has become a revenue machine. Since going public in 2016, the firm’s annualized revenues have doubled. Last quarter alone, Twilio saw revenues jump by more than 54%.
But more growth could be down the line. For one thing, it keeps racking up new customers, and more impressively, exciting customers are paying more and adding more of the firm’s features to their sites. That could its new <PAY> feature. This will allow developers to process payments securely via automated Interactive Voice Response (IVR) interactions — all for just one extra line of code. No wonder analysts expect TWLO’s bottom line to surge by 116% and 400% over the next two full fiscal years, respectively.
All in all Twilio is a worthy replacement for the FANGs.
Speaking of payments, PayPal (NASDAQ:PYPL) is right up there with the FANGs. The name should be well known by now. If not, the gist is that PYPL is an online payments system that supports online money transfers. From buying items online to giving your roommate money for last night’s pizza, PYPL is quickly becoming the easiest way to pay for things. Really, you just enter your payment info once and you’re able to quickly shop/tap the “buy now” button.
So, it’s no wonder why its quickly becoming popular with consumers. As of the end of last quarter, more than 254 million active accounts made more than 2.5 billion payment transactions. And PYPL collected some hefty revenues on all this. Revenues grew by 14%, while profits jumped by 17% during the last three reported months.
That’s some pretty impressive growth already. But PYPL has more in the tank.
First, the firm continues to move in mobile payments. The speed of checkout at a physical store when using your phone is pretty instant and with Millennials leading PYPL’s customer base, this opportunity is huge. Secondly, its consumer-to-consumer app Venmo continues to rack up transactions at a hefty pace. And finally, PayPal’s partnerships with regular banks as well as fin tech firms are starting to work wonders.
In the end, while it may be more of an old tech firm, PayPal still can give the younger FANGs a run for their money.
The joke about IT helpdesks is that they are not very helpful at all. Cloud computing giant ServiceNow (NASDAQ:NOW) is changing that. The firm originally provided a series of SaaS applications designed to automate various IT functions. But the platform works so well, these days NOW’s series of programs cover everything from security and human resources to customer service and even application development itself. The idea is to add efficiency and automation to a variety of business processes.
And customers like the idea very much.
During NOW’s last earnings release, the cloud computing firm reported 614 customers with $1 million in annual contract value. This represented 37% year‑over‑year growth. That sort of growth — as well as plenty of one-off sales — helped NOW see total revenues clock in at $673.1 million for the quarter. Again, that was year-over-year growth north of 39%. Given the firm’s insanely strong margins for its business model, profits jumped by over 78% and managed to crush analyst estimates.
The beauty is that ServiceNow could be just getting started.
As firms continue to save on costs and reduce complexity from their operations, NOW’s revenues and customer base could explode. Moreover, it’s very easy for Service Now to scale up its platform to meet additional corporate actions as time goes on. This provides it with plenty of future firepower to help grow sales/profits further. And once you’re in their system, customers tend to stick with it and add additional services.
When it comes to the FANGs, Service Now could be one of the best choices to replace them.
One of the problems with the FANGs is the lack of dividend growth. In fact, there aren’t any dividends at all. But another older tech stock can provide plenty of income muscle as well as some FANG stock like growth behind it. And that’s Microsoft (NASDAQ:MSFT).
As we’ve said before, today’s MSFT is no tech dinosaur. Under CEO Satya Nadella, Mr. Softy has become one of the biggest and best players in the cloud. Both its Azure and Dynamics 365 platforms continue to rack up more and more enterprise customers as they grow by double-digits. Meanwhile, MSFT continues to reap plenty of revenues from regular consumers as well. Office 365 is a hit and last quarter; the firm’s gaming unit has quickly begun to shine, making more than $2.74 billion, or 44% more, due to rising hardware and subscription sales.
All of this continued growth has made MSFT very much FANG worthy. But in one big way, Microsoft is better than the FANGs — it’s sharing that wealth via plenty of dividends. Mr. Softy has raised its payout by an average of 8.5% annually over the last three years. This is on top of its pretty torrid share price growth.
For those investors looking for a bit more conservatism from their tech investment, MSFT could be a top-notch choice. Keep in mind, conservatism doesn’t mean slow growth, however.
As of this writing, Aaron Levitt held a long position in VEEV stock.