Markets

3 Tech Stocks to Buy While They Are on Sale

Many technology stocks were big winners in 2020, but when the new year began investors seemed to lose a bit of their enthusiasm for the sector. Perhaps investors thought that tech stocks were flying too high or that other sectors could grow faster as the economy opened back up.

Whatever the case, some fantastic technology stocks are currently on sale and savvy investors would be wise to head straight to the bargain bin. To help you sift through the pile, we asked a few Motley Fool contributors for their top tech stocks right now. They came back with Etsy (NASDAQ: ETSY), SoFi Technologies (NASDAQ: SOFI), and Snowflake (NYSE: SNOW). Here's why.

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Image source: Getty Images.

Etsy is becoming more fashionable (at a discount)

Brian Withers (Etsy): Etsy seemed to be an overnight success as millions discovered the platform last year when searching online to buy face masks amid the coronavirus pandemic. Since then its artisans have sold $948 million worth of masks. But those investors who think this tech-powered marketplace is just a coronavirus play couldn't be more wrong. Let's dive into the company's latest results and see why this gem could be a steal at 20% below its all-time high.

Metric

Q1 FY2020

Q4 FY2020

Q1 FY2021

Change (QOQ)

Change (YOY)

Gross merchandise sales (GMS)

$1.4 billion

$3.6 billion

$3.1 billion

(14%)

127%

Revenue

$228 million

$617 million

$551 million

(11%)

142%

Active buyers*

47.1 million

80.9 million

89.7 million

11%

90%

Data source: Etsy. QOQ = quarter over quarter. YOY = year over year. *An active buyer is one that has made a purchase in the last 12 months.

Gross merchandise sales on its platform declined from the holiday quarter coming into the first quarter bringing revenue down 11% quarter over quarter. But the year-over-year changes were robust, with a 127% increase in GMS, a 142% increase in the top line, and a 90% increase in active buyers.

Sequentially, buyer metrics were strong across the board, showing that this platform is attracting and keeping customers, even as the coronavirus wanes. Repeat buyers grew 13% sequentially to 36.4 million and habitual buyers grew 22% to a record 7.9 million. Repeat buyers have more than one purchase day in the last 12 months, and habitual buyers rack up six purchase days in that same time period. What's even more impressive is that GMS per active buyer also hit a record of $124 in the quarter, a 20% year-over-year improvement.

But the company is not resting on its laurels. A recent acquisition of fashion reseller Depop for $1.6 billion bolsters its apparel category, which put up $1.2 billion in GMS over the previous 12 months and a solid 83% year-over-year growth for the quarter. The Depop brand strengthens the company's stranglehold on "special" e-commerce, where 88% of buyers said they find products on Etsy that they can't find anywhere else. But wait, there's more. Last month, it extended its merger and acquisition run with a $217 million purchase of Elo7, the Etsy of Brazil. Between these two acquisitions, the company will have its hands full with integration activities and pursuing more growth in the quarters to come.

With the stock off its high, don't be fooled into thinking this pullback makes the stock a bargain. It still carries a lofty valuation that might scare off value investors. Its price-to-sales ratio is in the double digits at 13 and its trailing price-to-earnings ratio tops 50. But growth investors know that they need to pay up for quality and this marketplace for artisans is a one of a kind. I couldn't pass up the value this stock is presenting right now and picked up some shares myself this past week. Maybe you'll consider joining me?

A woman sitting in an office.

Image source: Getty Images.

A fintech monster in the making

Danny Vena (SoFi Technologies): Sometimes a stock goes on sale for reasons that have nothing to do with the company's business -- and that's exactly the case with SoFi Technologies. To understand what's happening with the share price requires a look at some of the provisions in the company's lock-up agreement.

The special purpose acquisition company (SPAC) merger between Chamath Palihapitiya's Social Capital Hedosophia Holdings V and Social Finance was completed on May 28, and SoFi Technologies began trading on June 1. The completion of that merger started the clock ticking on the company's traditional lockup period of 180 days -- the period after which insiders and early investors could sell the stock.

There were some unusual provisions included in the lock-up agreement, however, that would trigger an early end to the lock-up period for a large chunk of the shares.

If SoFi stock traded above $12.50 for any 20 days during a 30-day period, 33% of the shares subject to the lock-up would be released early. For context, SoFi opened at $22.97 on June 1 and never traded below the $12.50 threshold for the entire month -- thus triggering the early release of 33% of the shares from the lock-up period.

The second provision stated that if SoFi stock traded above $15 any 20 days during a 30-day period, an additional 50% of shares subject to the lock-up would be released early. SoFi stock never traded below $18.50 per share during the month of June -- triggering the early release of another 50% of shares subject to the lock-up.

The flood of new shares on the market and short-selling that preceded the end of the lockup conspired to drive the stock price down. As of this writing, SoFi stock has fallen 37% from its high in early June. In cases like this, however, it's important to look to the company's business performance for insight into the future.

In the first quarter, SoFi delivered revenue that grew 150% year over year, while some of its segments did even better. Its lending segment grew 105%, its technology business soared 45-fold, and its financial services segment jumped 200%. At the same time, SoFi generated its third consecutive quarter of positive adjusted EBITDA, setting the stage for future profitability.

Other metrics illustrate the reasons for the company's surging revenue growth. Members grew 110% year over year, while its lending and financial services product offerings grew 12% and 273%, respectively. The number of accounts related to its Galileo financial services platform ballooned 130%.

These metrics help illustrate that SoFi is firing on all cylinders. Investors should ignore the stock price decline related to the expiration of the lock-up agreement and buy shares now, while they're on sale.

A worker sitting a desk.

Image source: Getty Images.

This stock isn't melting down just yet

Chris Neiger (Snowflake): Since the beginning of this year, shares of the cloud-based data platform company Snowflake have tumbled nearly 6%. The company's stock has taken a hit for several reasons that are worth a quick recap. Here are two:

First, Snowflake's share price began falling in February as part of a broader sell-off of tech stocks in the market. Many investors poured money into tech stocks in 2020 as they looked for businesses that could still do well during pandemic-induced lockdowns.

But then investors pivoted their attention away from tech stocks and toward other areas of the U.S. economy, sending Snowflake's and other tech companies' share prices tumbling.

Second, some investors sold their Snowflake shares after the company reported its fiscal-year 2021 results in March. Sales spiked 124% from the previous year, but its net loss widened and some investors got scared Snowflake's run was over.

While it's no surprise that investors don't like to see a company's losses widen, it appears that investors overlooked the company's impressive growth stats from its first quarter (reported in May) including having more than 100 customers who spend more than $1 million each with company every year.

In fact, Snowflake is growing so fast that its management believes it will surpass $10 billion in product revenue by 2029. That impressive figure will be achieved by adding new customers and convincing them to continue spending more money on Snowflake's platform -- two things that are already happening.

Snowflake now has 4,532 total customers and its net revenue retention rate is 168%. That means Snowflake's customers continue to see value from its services and continue to increase their spending with the company.

With Snowflake still in the early stages of its growth, investors should remain patient with this company. The recent pullback from the company's share price is creating a buying opportunity for savvy investors -- and in the coming years, you'll likely be glad you added this tech stock to your portfolio.

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Brian Withers owns shares of Etsy. Chris Neiger has no position in any of the stocks mentioned. Danny Vena owns shares of Etsy, Snowflake Inc., and SoFi Technologies, Inc. The Motley Fool owns shares of and recommends Etsy, Snowflake Inc., and SoFi Technologies, Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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