The tech industry is expected to stand tall even with the gradual economic recovery that is expected this year. Large-cap companies operating in the tech industry have been the biggest beneficiaries of the COVID-19 pandemic; they leveraged their resources and contributed mightily to the sustainability of the global supply chain, to increase their revenue and earnings significantly. While many expect the tech industry to retreat once the pandemic is over, the rising global dependence on technology should keep the sector’s momentum alive this year.
However, the rising power of large-cap companies such as Amazon.com, Inc. (AMZN) has sparked a fear of monopolistic behavior in the markets, leading to federal investigations. But in the worst-case scenario, if these giants are forced to split their operations into multiple small-scale companies, their dominating position in virtually all spheres should protect their growth prospects quite well.
Companies such as Adobe, Inc. (ADBE) and Netflix, Inc. (NFLX), which lead the markets in the cloud computing and virtual entertainment segments, respectively, have plenty of upside. With consistent improvement in revenue and earnings over the past couple of years, these companies have undertaken strategic expansion and financial consolidation measures to propel their growth going forward. With the dependence on technology likely to deepen in the future, we believe that these stocks have plenty of room to move higher.
Amazon.com, Inc. (AMZN)
As the largest e-commerce company in the world, AMZN has been one of the biggest gainers in the pandemic. It has a market capitalization value of nearly $1.60 trillion, making it one of five trillion-dollar companies operating in the world.
This comes in despite the current antitrust charges levied against the company by the U.S. government and European Union. AMZN has been implementing robust expansion strategies to increase its market reach. AMZN is currently building multiple fulfilment centers across the country, as well as developing its cloud services segment (AWS). As the demand for cloud services continues to rise amid the remote working and learning culture, AWS has emerged as one of the top three largest cloud computing companies and is poised to expand further into the Indian and European markets. On the e-commerce front, AMZN purchased 11 aircrafts from Delta Air Lines and WestJet Airlines on January 5, which are expected to add to the company’s air cargo network within the next two years.
AMZN has maintained its growth trajectory over the past couple of years, making it one of the fastest growing large-cap companies. By branching out to new segments and entering budding markets, AMZN has enjoyed a substantial rise in earnings. The company’s revenues have increased at a CAGR of 29.3% over the past three years, while its EPS has risen at a CAGR of 105.8% over the same period. Its net income has grown at a CAGR of 108.2% over the past three years.
AMZN launched Amazon Pharmacy for online prescription medication sales on November 19. Online drug sales through its e-commerce platform reaps several savings benefits, with up to 80% savings on no-prescription medication. With a second wave of COVID_19 infections now raging across the U.S., coupled with high unemployment, AMZN pharmacies should witness high demand as people order medication online to save money while social distancing.
AMZN’s net sales have increased 37% year-over-year to $96.10 billion in the third quarter ended September 30, 2020. Its net income has grown 200% from the year-ago value to $6.30 billion, while EPS has risen 192.4% from the same period last year to $12.37.
The consensus EPS estimate of $45.41 for the current year represents a 30.1% rise year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $449.57 billion for the current year indicates an 18.3% rise from the year-ago value.
AMZN gained more than 115% to hit its 52-week high of $3,552.25 in September, since hitting its 52-week low of $1626.03 in March. The stock has gained 155.3% over the past three years.
How does AMZN stack up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
B for Industry Rank
B for Overall POWR Rating.
It is currently ranked #20 of 71 stocks in the Internet industry.
Adobe, Inc. (ADBE)
ADBE is a diversified software company operating in three major segments – Digital Media, Digital experience, and publishing. Its subscription service known as Creative Cloud affords members access to the latest versions of premium creative products. ADBE provides services in the field of digital marketing, web application development, OEM printing, and market automation. Known for its photoshop and video editing software, ADBE is a leading player in cloud computing and interactive software segment.
The company’s focus on branding and innovation has allowed it to capture a sizeable market globally. As a result, ADBE’s revenues have increased at a CAGR of 20.8% over the past three years, while its EPS has grown at a CAGR of 47.4% over this period. Net income has increased at a CAGR of 45.9% over the same period.
ADBE total addressable market will expand to $147 billion by 2023, as revealed a financial analyst meeting on December 10. The company also announced a $15 billion multi-year stock repurchase program that day. This should allow the ADBE to strengthen its position in the booming cloud computing industry, while increasing its shareholder returns.
ADBE acquired work management platform Workfront in December , which should streamline its marketing services significantly. This synergy should allow ADBE to provide a comprehensive platform to its customers to enhance its productivity and efficiency rates, thereby making it highly demanded in the remote working culture.
ADBE reported record revenues of $3.42 billion in the fiscal fourth quarter ended November 27, 2020, up 14% year-over-year. This can be attributed to a 20% rise in its Digital Media segment revenue, and a 14% rise in Digital experience subscription revenue. Net income has risen 164.1% from the year-ago value to $2.25 billion, while its EPS increased 166.4% from the same period last year to $4.52.
The consensus EPS estimate of $11.22 for fiscal 2021 represents an 11.1% rise year-over-year. ADBE has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $15.20 billion for the current year represents an 18.1% improvement from the same period last year.
ADBE gained more than 110% to hit its 52-week high of $536.88 in September since hitting its 52-week low of $255.13 in March 2020. The stock has gained 42.8% over the past year.
It is no surprise that ADBE is rated “Buy” in our POWR Ratings system, with an “A” for Trade Grade, and “B” for Buy & Hold Grade and Industry Rank. It is currently ranked #34 of 121 stocks in the Software – Application industry.
Netflix, Inc. (NFLX)
NFLX is the largest video streaming and entertainment platform in the world, with more than 95.15 million subscribers, as of September 30, 2020. While NFLX’s growth is greatly attributable to the coronavirus pandemic, which increased the demand for virtual entertainment worldwide, the company has been on an upward trajectory for quite some time.
NFLX has gained 140.7% over the past three years, which can be ascribed to its impressive earnings and revenue growth. NFLX’s revenue has increased at a CAGR of 29.8% over the past three years, while net income has risen at a CAGR of 85.4% over this period. EPS has risen at a CAGR of 83.6% over the same period.
NFLX’s revenue has increased 22.7% year-over-year to $6.44 billion in the third quarter ended September 30, 2020. The company’s operating income has risen 34.2% from the year-ago value to $1.32 billion, while net income has grown 18.8% from the same period last year to $790 million. EPS has increased 18.4% from the prior-year quarter to $1.74.
While net additions to its Board of Directors have slowed over the last reported quarter, NFLX recently made some value additions to its Board The company appointed Strive Masiyiwa, founder and chairman of a telecommunications and technology group based in Europe and Africa, to its Board of directors, on December 16. By leveraging Masiyiwa’s vast experience and market reach, NFLX should be able to enter the African markets with an advantage .
The consensus EPS estimate of $9.03 for the current year indicates a 44% rise year-over-year. The consensus revenue estimate of $29.50 billion for fiscal 2021 indicates an 18.2% rise from the same period last year.
NFLX nearly doubled in just four months to hit its 52-week high of $575.37 since hitting its 52-week low of $290.25 in March. The stock has gained 53.2% over the past year.
NFLX’s POWR Ratings reflect this bullish outlook. It is currently ranked “Buy”, with an “A” for Trade Grade, and a “B” for Buy & Hold Grade and Industry Rank. In the 71-stock Internet industry, NFLX is currently ranked #22.
Want More Great Investing Ideas?
AMZN shares were trading at $3,114.21 per share on Monday afternoon, down $68.49 (-2.15%). Year-to-date, AMZN has declined -4.38%, versus a 1.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|AMZN||Get Rating||Get Rating||Get Rating|
|ADBE||Get Rating||Get Rating||Get Rating|
|NFLX||Get Rating||Get Rating||Get Rating|