Ever since tech stocks peaked earlier this year, the Nasdaq 100 index has struggled. The sector is too dependent on FAANGM names such as Microsoft (NASDAQ:MSFT) for sustaining its uptrend. This masks the underlying performance of the sector.
Unless investors hold an exchange-traded fund that mirrors the Nasdaq index, they will miss out on companies with a smaller market capitalization.
Stock pickers seeking value have a chance to choose from beaten-down tech stocks that few follow. In the next month, the tech sector is typically very weak. If valuations are still unfavorable, which stocks are likely to survive the September sell-off slaughter? Companies that reported strong quarterly growth and have an increasing customer base will attract investors. Their stock may look expensive but markets are willing to assign a premium valuation.
These seven tech stocks have a good chance of resisting selling pressure next month and beyond.
- Alteryx (NYSE:AYX)
- C3.ai (NYSE:AI)
- Digital Turbine (NASDAQ:APPS)
- Magnite (NASDAQ:MGNI)
- Model N (NYSE:MODN)
- Pinterest (NYSE:PINS)
- Spotify Technology (NYSE:SPOT)
<em>The quality, value, and growth scores vary among the technology stocks.</em>
In the quant score table (above), Digital Turbine has the highest overall ratings while Model N has the best value. Even with mixed valuation and growth scores, those software stocks are potentially strong performers in the next month.
Tech Stocks: Alteryx (AYX)
In the second quarter, Alteryx posted revenue of $96.2 million, up by 25% from last year. The analytics automation company posted gross margins of 89%. Still, the $35 million loss from operations spooked AYX stock holders. The company still needs to prove that it can beat the competition in its advancements in business intelligence.
Investors are frustrated with the sales team’s attrition rates. On its conference call, CEO Mark Anderson acknowledged the high attrition rates. This led to weaker annual recurring revenue and shorter contracts. Alteryx hired more sales staff in the quarter. It will continue to focus on large enterprise customers. Also, Covid-19 delayed some employees onboarding. Assuming that the company retains existing staff and the conversion-to-sales rate improves, Alteryx’s stock price will increase in September.
Customers require software solutions that cut costs through better automation and analytics. This trend will continue, giving Alteryx the chance to win more customers in the final quarter of 2021.
C3.ai (AI)
C3.ai is stuck in a trading range at around $45 to $50. After its initial public offering died down, bears built an 8.6% short float against AI stock. Investors are worried over C3.ai’s growth rates in the next year. At over 25 times sales, AI stock is an easy target for bears. Should customers restart projects previously delayed, then C3.ai should perform better in the next month.
In Q4 FY2021 (April), C3.ai posted a 26% growth in revenue year-on-year, to $52.3 million (from slide 4 of the earnings presentation). Gross profit of $40.6 million is 26% higher than last year’s levels. The 82% customer count growth YoY suggests that the company has strong momentum to add more clients in the next year. Its $200 million in annualized revenue ($52.3 million times 4) is light. But once the impatient investors sell the stock, the selling pressure should end.
It is due to report first-quarter (July) FY2022 earnings on Sept. 1. Management has guided revenue between $50 million and $52 million. The Zacks Consensus Estimate for revenue currently stands at $51 million.
C3.ai has fans on Wall Street. The average price target, based on seven analyst reports, is $102 (according to TipRanks).
Tech Stocks: Digital Turbine (APPS)
Digital Turbine dropped after posting first-quarter results. It earned 34 cents a share as revenue rose by 260.3% Y/Y to $212.62 million. The mobile advertising firm forecasted revenue of up to $306 million in the second quarter, above analyst consensus estimates. Non-GAAP EPS will be 38 cents, a penny higher than consensus.
The growth story did not change though the APPS stock price dropped after the earnings report. It has acquisition synergies ahead that will lift operating margins. Samsung’s SingleTap agreement is a positive catalyst. Digital Turbine went live with Samsung in Latin America. It also recently expanded that into Europe. It is expanding into other geographies, which will lead to stronger revenue growth.
CEO Bill Stone is bullish on the television market space but is more optimistic on the mobile market. On the earnings conference call, he said that the mobile media market is worth over $300 billion. With its less-than-1% share of that, APPS has room to grow and produce strong results.
Magnite (MGNI)
Magnite, the world’s largest independent sell-side ad platform, posted revenue growing by 170% Y/Y to $114.5 million. It swung to a profit with 11 cents a share (non-GAAP), compared to a 10 cent loss last year. The firm set a Q3 revenue range of between $112 million to $116 million (as shown on slide 5). Its expenses for the second half of 2021 are just $16 million.
On its conference call, CEO Michael Barrett cited the company’s strength in the connected television marketplace and DV+ (display, video, and other formats).
He said that product and engineering teams are focused on CTV and DV+. This enables Magnite “to better invest in the areas of the company because you saw the display growth numbers, they were quite strong for the quarter and then that intimating that, the display is up 60% marketplace every quarter.” Magnite is highly profitable. Its team is demonstrating the company can grow profits.
Magnite’s strong growth rates validate the long-term buy-and-hold prospects for patient investors. With MGNI stock underperforming throughout the summer — off 8.5% since the beginning of June — Magnite is unlikely to fall any further in the next month.
Tech Stocks: Model N (MODN)
With short interest of around 8%, bears are circling Model N. The company posted non-GAAP earnings a share of 11 cents. Revenue rose by 23.6% Y/Y to $51 million. CEO Jason Blessing cited the company’s “strategic focus on the Life Sciences and High Tech verticals and our customers’ need for our mission-critical products.”
Software-as-a-Service transition, its go-to-market programs, new logos, and professional services are all contributors to the strong Q3 results. Model N’s catalyst is the business services acquisition that strengthened its staff.
Furthermore, it is leveraging the dynamic shift to the cloud. For now, MODN will post modest revenue growth. In the long term, subscription revenue will add meaningfully to results.
More than three-quarters of its customers used an average of 2.4 cloud products. The company has a chance to expand sales from its existing customer base to increase margins.
For the full year of 2021, Model N issued an EPS guidance of between 45 cents to 47 cents (from slide 6). Most of its total revenue in the range of $192.5 million – $193 million will come from subscription revenue.
MODN stock is down about 3% so far this year.
Pinterest (PINS)
Social media giant Pinterest spooked investors when it posted monthly average users (MAUs) missing estimates. In the second quarter, it earned 25 cents a share (non-GAAP). Revenue rose by 125% Y/Y to $613.21 million. But global MAU rose by only 9% to $454 million. In the U.S., MAUs fell by 5% to 91 million.
Markets overreacted to the slowing user base growth. Investors unsupportive of Twitter’s (NYSE:TWTR) censorship or Facebook’s (NASDAQ:FB) slowing Instagram growth compared to TikTok may buy PINS stock instead. Now that markets discounted the stock on concerns of slowing user growth, the chances of another leg down on PINS stock are unlikely.
Users may have taken a break in the summer to go outside and enjoy restaurants and shopping. As the risks of another Covid wave emerges again, people will likely revert to higher mobile app usage. Pinterest is the first to benefit from a surge in mobile traffic later this year. The stock has the lowest market capitalization compared to peers.
Simplywall.st set a fair value of around $60 for PINS stock. The 23 analysts offering 12-month price targets, as tracked by CNN Business, have a median target of $72, with a high estimate of $100 per share.
Tech Stocks: Spotify Technology (SPOT)
Spotify, a Swedish audio streaming services provider, recognized its stock’s undervaluation by announcing a buyback. It will buy up to 10 million shares, or up to $1 billion, of SPOT stock.
Spotify sold off in the last few months, down 3.56% since the beginning of June, so the chances of the stock falling when the tech sector falls in September are remote.
In the second quarter, Spotify posted revenue growth of 23.3% Y/Y to 2.33 billion EUR ($2.75 billion). It ended the quarter with an impressive 165 million premium subscribers. Spotify expects MAUs to reach 382 million in Q3. In Q4, total MAUs will be as high as 407 million.
The podcast average revenue per user is a positive catalyst. Spotify is in the very early phases of monetizing the shift in listener interest. Advertisers will follow. Furthermore, it has a pipeline and platform that competitors cannot match. However, not all is well in the podcast department. Last week, The Verge revealed that power podcaster Joe Rogan’s “influence has waned since he went behind Spotify’s wall.”
SPOT stock gets plenty of Wall Street analyst coverage. The average price target is $297 (according to TipRanks).
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
