1. Square
Fintech leader Square has come forward as a force to contend with in the financial industry. The company gives point-of-sale solutions, analytics, capital and other services to merchants. The company also services customers through its payment system, Cash App.
The seller ecosystem is a larger part of the company’s business. Despite covid harming physical retailers, the company processed payment volume totaling $103.7 billion in 2020, down y/y by 13.6%.
Square is not dependent only on smaller businesses — making the company more resistant to economic challenges. In Q4, larger sellers with volume over $0.5 million made up nearly 60% of their total seller volume.
Cash App is a smaller but faster-growing segment of Square’s operations. The peer-to-peer platform’s active users increased y/y by 50% to 36 million in late 2020.
Individuals can use the Cash App for many financial tasks including investing in Bitcoin and stocks. Square’s revenues from such Bitcoin transactions increased by a whopping 785% in fiscal 2020.
Square is selling at right over 110x forward earnings. These valuations are expensive. But Square estimates its whole market to be over $160 billion. The company has its market penetration pegged to be under 3%. Considering the company’s 2020 revenues, the market share comes to 6%. The company also had profit of $213 million in 2020. With such a huge market size, this profitable company has much more room to grow.
2. Datadog
Cloud company Datadog offers solutions to monitor IT networks, infrastructure, applications and much more — on a unified dashboard. The company has benefited from the pandemic-driven digital transformation. While it has cooled off after their lower-than-expected fiscal 2021 numbers, the company is still very much in demand.
In 2020, the amount of Datadog customers spending over $1 million per year increased year over year by 94%, while those spending over $100,000 also grew by 46%. The company’s dollar-based net retention rate has been 130% for fourteen quarters in a row, which also includes Q4. At the end of last quarter, 72% of its customers were using at least two of the company’s products, while 22% utilized four or more. The company’s strategy has created a sticky customer list.
Last year, their revenues popped by 66% to $603.5 million, non-GAAP income was $71.6 million, and cash flow numbered at $83 million. For fiscal 2021, the company has estimated revenues to grow by 37% to 38% and net income per share to decrease y/y by 36% to 54%. However, the decline in earnings is not that large a challenge, considering that the company is prioritizing revenue growth over short-term profits.
Trading at almost 310 times forward earnings, it is pricey. But considering the company puts its possible market around $35 billion and is already a huge player in the observability space, there is great potential for it to reach even higher.
3. Fulgent Genetics
Fulgent Genetics is a genetic technology company that has now transformed into a leading covid testing player and has great potential to increase even after covid is gone.
The company had a perfect run in 2020. Revenues went up by 1,200% to $421.7 million, while net income saw an explosion y/y from a negative $411,000 to a profit of $214.3 million.
Despite these incredible results, investors are anxious about covid testing revenues going away soon, which in turn will have a huge effect on the company’s growth. This concern is reasonable since most of the fiscal 2020 growth came from the virus testing business.
However, the future of the company’s non-COVID business — where they are using next-generation sequencing (NGS) technology to find 5,700 different genetic conditions based on certain mutations in over 18,000 genes at a cheap price– is now secure.
Fulgent’s price has already increased over 619% in the past year and over 82% in 2021. The company is now predicting a 90% y/y increase in 2021 revenues to $800 million, which is an amazing forecast after an already strong year. Given this, the company could soar again this year.
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