Technology stocks have been hammered so far in 2022. The Nasdaq 100 Index is down 23% year to date (YTD), the ARK Innovation ETF is down 55%, and many individual stocks are down as much as 75%. Drawdowns such as these can be tough to stomach. However, if you have cash coming in, now is the time to take advantage of falling stock prices and buy stakes in companies when they are trading on the cheap.
Here are two technology stocks set to soar over the next few years that you should consider adding to your portfolio.
First up is Spotify (SPOT -1.97%), the leading music and audio streamer around the world. The company went public back in 2018 at a price of $165.90 a share. Since then, the stock has gone on a wild ride, with shares currently in a 50%+ drawdown to $110, well below what it first traded at five years ago.
Even though the stock has been down over the past five years, Spotify’s business has steadily grown over that time span. Last quarter, monthly active users (MAUs) hit 433 million, up 141% from the same period in 2018. Premium subscribers — customers who pay a monthly fee for ad-free music listening — are at 188 million, up 126.5% since 2018. This steady growth is set to continue. Third-party analysts expect the music streaming market to grow at a compound annual growth rate (CAGR) of 15% through 2030. If Spotify can maintain its market share around the globe, this should lead to consistent double-digit subscriber growth.
On top of subscription revenue, Spotify is planning major expansions into podcasts and audiobooks. The podcast business is already scaling up, driving advertising revenue to grow 31% last quarter to $360 million. An audiobook product is expected sometime soon, according to management’s discussions on the second-quarter conference call. It is unclear exactly what Spotify’s ambitions are within audiobooks, but with the industry expected to hit a size of $33.5 billion in 2030, this is a huge market to go after.
Some investors are concerned Spotify has not consistently generated a profit as a public company. But with such a large opportunity to grow the service this decade, I don’t think shareholders should be concerned with short-term profitability. As long as users and subscribers continue to grow at a high rate, shareholders should do well owning Spotify in the years ahead.
Second on our list is Wix.com (WIX -1.67%), a platform for building and managing your business online. The company offers website building tools as well as e-commerce and payment acceptance software for small businesses. The stock is down 58% YTD and over 50% in the last three years.
What has investors down on Wix? The company’s financials look poor this year compared to the pandemic periods of 2020 and 2021, when e-commerce and website development accelerated around the globe. Total revenue only grew 9% year over year in Q2 of 2022 to $345.2 million, a big slowdown from the 34% growth it put up in Q2 of last year.
This revenue slowdown is occurring because of a general slowdown in website development. Before the pandemic, in the first quarter of 2019, websites around the world were growing at 2.1% year over year. During 2020 and 2021, this accelerated to 4.5% and 5%, respectively, before heavily reversing to only 0.8% growth in 2022.
Wix management thinks overall website growth will eventually return to pre-pandemic rates, which will accelerate the company’s revenue growth. If you agree with this analysis, Wix stock looks cheap at these prices. At a market cap of $3.72 billion, the stock trades at a dirt-cheap forward price-to-free-cash-flow (P/FCF) ratio of 7.4 based on management’s goal to hit $500 million in free cash flow in 2025. still a few years out, I think Wix shareholders will do well owning the stock if it achieves this free-cash-flow target.
Brett Schafer has positions in Spotify Technology and Wix.com. The Motley Fool has positions in and recommends Spotify Technology and Wix.com. The Motley Fool has a disclosure policy.