Ready or not, the bear market for high-growth technology stocks has arrived. Although technology stocks have been a mainstay for Wall Street since the end of the Great Recession, both Nasdaq Composite And Technology Select Sector SPDR ETF More than 20% off all-time highs and in official bear market territory.
While the unpredictability and speed of negative moves during a bear market can be intimidating, history has shown time and time again that putting your money to work during these big bearish drawdowns is a smart move. That’s because all the noticeable dips are eventually wiped out by bull market rallies – and Wall Street knows it.
Although it’s common for Wall Street analysts to be bullish on the tech sector, few analysts are particularly optimistic about the growth prospects of the three battered stocks. If these high water price targets prove accurate, the next tech stocks could gain as much as 167% over the next year.
Snowflake: Implied height of 167%
The first is a cloud data storage company snowflake (snow 5.81%), which fell from an intraday high of $405 in November to close at $155.27 over the past week. Despite this stumble, Phil Winslow Swiss credit Snowflake expects a new high at $415 per share. That would be a 167% increase, for those of you who are keeping score at home.
Why 415 dollars? According to Winslow, Snowflake is at the forefront of cloud-native data analytics and should play a key role throughout the entire “data value chain”. Winslow believes that the company will continue to win a lot of new customers, and that its superior growth rate can continue for much longer than many expect.
Apart from the rapid growth rate among cloud stocks, what stands out most about Snowflake is its unique operating model and competitive advantage. For example, Snowflake chose the subscriber model that almost all other cloud players swear by. Instead, it charges customers based on the data they store and the number of Snowflake account credits used. This method is much more transparent and allows the company’s customers to better control their costs.
In addition, Snowflake solves one of the biggest challenges of the cloud infrastructure landscape: sharing data across competing platforms. Because Snowflake solutions are built on top of existing cloud infrastructure, members can seamlessly share data.
The company is also targeting $10 billion in product revenue by fiscal year 2029 (calendar year 2028). This would represent a massive seven-year jump from $1.14 billion in FY 2022 sales to the full fiscal year.
However, Snowflake is only marginally profitable and has continued to trade when evaluating nosebleeds compared to its full-year sales (about 24 times the expected sales in 2023). While the premium doesn’t seem justified given the company’s superior growth rate and competitive advantage, a deteriorating market that has led to a focus on traditional core metrics won’t help Snowflake’s case. In other words, I don’t expect Snowflake to reach anywhere near Winslow’s price target over the next 12 months.
Skillz: 155% implied rise
Another toy company from a defeated tech stock that at least one Wall Street analyst thinks can turn things around Skills (SKLZ 14.77%). Wedbush analyst Michael Pachter has a $5 target on Skillz shares, which closed below $2 last week. If Pachter’s goal becomes reality, shareholders will enjoy 155%.
Looking back at the history of the Pachter target at Skillz, it will provide no relief for investors. He and his company lowered their target price on the Skillz from $34 to $25 to $7.50 and now $5. However, Pachter appreciates the company’s unique business model and believes that it will lead to more paying users.
Traditional gaming companies spend a lot of money and a lot of time developing console, PC, and mobile games. There is absolutely no guarantee that all of this money and effort will be successful, which is what makes the game development scene so competitive.
Instead of competing against the seniors, Skiles chose to be a mediator. The company has developed a mobile gaming platform that allows users to compete against each other for cash prizes. After that, Skillz and the respective game developer are able to keep a percentage of the cash prize. It is easier (and cheaper) for Skillz to maintain the infrastructure of a gaming platform than to develop successful mobile games.
Another reason for the excitement about Skillz is the multi-year agreement the company signed with the National Football League (NFL) in February 2021. Under the deal, developers are competing to create NFL-themed mobile games that will debut on the company’s gaming platform during the 2022 NFL season. American football. Football happens to be the most popular sport in the United States
But Skills also have hurdles to overcome. Although the total number of customers paying to play is rising, the company’s expenses have been very high. As Skillz scaled back participatory marketing, its growth rate slowed dramatically. With investors focused on profitability as the market corrects lower, Skillz will have to narrow its losses significantly if it has any chance of hitting $5 a share.
Octa: Implied rise of 134%
According to Wall Street, the third tech stock with serious bullish potential is the cybersecurity company octa (OKTA 3.82%). Guggenheim analyst Imtiaz Kogalji set a $240 target price for the company in early March, 134% higher than Okta’s share price of $102.45 that closed last week.
Although Kouljagi already lowered Okta’s price target by $25/share in March, the analyst noted strong billing momentum and all key metrics coming ahead of Wall Street expectations when the company reported its fourth-quarter operating results.
The beauty of cybersecurity is that it has evolved into a basic necessity service. No matter how well or poorly the US economy or stock market is doing, hackers and bots never take a day off from trying to steal enterprise data. This means that businesses of all sizes now rely on third-party identity management solutions more than ever before.
One of the reasons why Okta is a private company is its cloud-native assets and reliance on artificial intelligence (AI) / machine learning. By relying on artificial intelligence and machine learning techniques, Okta can identify and respond to potential threats more effectively. Although cloud-native cybersecurity platforms can be more expensive than on-premises solutions, the superior protection offered by cloud-native providers can make them more cost-effective in the long run.
Furthermore, Okta completed its transformative $6.5 billion acquisition of Auth0 one year ago. Although it was an expensive deal, the acquisition of this former competitor gives Okta a path to expand its reach into Europe and other overseas markets.
Similar to Snowflake, the biggest hit against Okta is its great valuation compared to sales. Although the shares have lost nearly two-thirds of their value in 15 months, Okta is still trading at nine times the expected sales for fiscal year 2023. With Wall Street loss estimates for the company widening as well, that’s not a great combination during the Nasdaq market.
Although I think cyber security is one of the smartest investments in the long run, I doubt Okta shares will approach $240 anytime soon.