Innovation is a factor which is highly valued by the stock market. And rightly so, as it can result in great returns if the company executes well on it’s plan.
Across the board, many growth stocks have seen an astronomical increase in valuations, as they experience strong demand for their products and services.
However, business conditions can be unpredictable, and for some companies which have yet to develop strong use cases and profitable business models, their x-factor and strategy may not be favorable in the long run.
With so much inherent risk in investing in growth stocks, investors need to assess every investment holistically in order to make a high quality decision.
Here are 3 innovative growth stocks which we think have strong practicality and huge addressable markets which investors might want to peruse over.
Zoom Video Communications (NASDAQ:ZM)
Zoom is an American communications technology company which provides video-telephony and online chat services through it’s cloud-based software platform.
The company is a recognized industry leader in this segment, and experienced a surge in demand during 2020, due to work-from-home arrangements. It also supports educational institutions in their efforts to digitize classes.
It’s core product is Zoom Meetings, a cloud-based video conferencing service which optimizes virtual meetings, and enables interactions between Zoom hosts and users.
The platform has become an essential tool for businesses who want to keep in touch and continue running their daily workflows with minimal disruption.
It also allows for large scale coordinated events numbering in the hundreds, with different configurations as well. Furthermore, Zoom has also integrated end-to-end encryption into it’s platform for better data security for it’s users.
While the company had seen consistent revenue growth since it’s 2019 IPO, it was the pandemic in 2020 that propelled it to a new stage of growth.
With an eight-fold increase in revenue since it’s IPO, Zoom has been able to invest heavily in R&D and marketing efforts, capturing significant market share in this time of need.
The company intends to continue to expand it’s product offerings to strengthen it’s market position by building a full suite of innovative and integrated collaboration and productivity tools to empower customers.
These moves will allow the company to drive deeper engagements between it’s current users, and acquire new segments, paving the way for a more dominant market position.
DocuSign Inc (NASDAQ:DOCU)
Readers who work in an administrative role will be familiar with “red tape”, which are bureaucratic issues and regulations existent in many aspects of business.
One such aspect is in the creation and adherence of official contracts and agreements. Examples include contracts such as sales contracts, and employment offers.
Traditional agreement processes are slow, expensive and error-prone because they involve many manual steps, disconnected systems, and paper signing, creating unnecessary workloads and increasing the cost of doing business.
Enter Docusign; the company employs the DocuSign Agreement Cloud to eliminate paperwork, automate processes, and connect seamlessly to other platforms as required by users.
It’s main product is the DocuSign eSignature, which facilitates the electronic signing of an agreement on a wide variety of devices, from virtually anywhere in the world, securely.
Apart from eSignature, the Agreement Cloud also carries a suite of products that address different aspects of the agreement process, in some cases for particular market segments or industries.
Some of the key products includes Insight, which uses artificial intelligence to search and analyze agreements by legal concepts and clauses, and Analyzer, which uses artificial intelligence to analyze inbound agreements.
These products enhance the attractiveness and feasibility of the DocuSign Agreement Cloud, which is already used by 890,000 paying customers, and hundreds of millions of users.
With the pandemic curtailing physical interviews and meetups, the company has seen a surge in demand for it’s solutions, causing full year revenue for 2021 to jump by 45%.
DocuSign’s products enjoy great scalability, and impressive gross profit margins of 75%, with most of their operating expenses going towards sales and marketing.
This is in line with the top management’s growth strategy of driving new customer acquisitions, and accelerating the company’s international expansion.
Datadog Inc (NASDAQ:DDOG)
In this era of digitization, the monitoring of databases and software is an issue which nearly every modern business entity has to contend with.
Depending on the type of commerce, such monitoring processes can vary from simple, cloud or program-based monitoring, to complex operations spanning multiple teams and specializations.
For the latter, problems tend to arise when disparate monitoring platforms are in use, leading to feedback discrepancy and confusion.
Furthermore, the lack of communication and visibility between development teams and operational, on the ground teams can hamper collaboration, slow down problem resolutions, and obscure important business metrics.
Datadog‘s cloud native platform provides real-time insights into software applications and IT infrastructure performance to enable better user experiences, faster problem detection and resolution, and smarter business decisions.
The platform is also modular and allows the monitoring of user experiences, network performance, and security issues, thus assisting in incident management as well.
This effectively allows teams to monitor performance and manage everything from infrastructure to user experiences all on one platform. Users are able to spot problems and identify insights, all through a single, easy to understand dashboard.
Management believes that there is a large, upcoming opportunity in modern multi-cloud and hybrid cloud environments, which Datadog is well-positioned to address and capitalize on.
Total revenues have tripled since 2018, from US$198m to US$603m in 2020. Based on 2021 Q1 and Q2 results, revenue is still increasing at an astounding rate.
Like most software businesses, the company maintains impressive gross margins of around 75-80%, with most operating expenses going towards R&D and marketing.
With rising cloud workloads and more business entities realizing a need to monitor their infrastructure and programs efficiently, Datadog should be able to expand and build on it’s current customer base for future growth.
The above mentioned candidates all have strong use cases, and large addressable markets for their products and services. This is likely why their share prices have performed so well during the pandemic.
Nonetheless, when we scrutinize their business models, we can identify their compatibility with ongoing macro trends, which should continue to boost the performance of these companies going forward.
If these fast-movers can capitalize on their advantages and seize market share early on, they may find themselves in a favorable position in the future.
Savvy investors who have the holding power and patience to invest in these companies could be well-rewarded for their commitment when these companies reach their prime.