Equity markets have had a tough time in 2022 with the S&P 500 (SP500) and technology-focused Nasdaq Composite (COMP.IND) down more than 17% and 30%, respectively, year-to-date.Rising inflation pushes the Federal Reserve to keep raising interest rates, pushing global The economy continues to weaken and many are predicting some kind of recession next year.
With all of this in mind, investment firm William Blair believes that several long-term trends, such as rising cybersecurity spending, advertising on the internet, software as a service, and the cloud, are likely to continue in the wake of next year’s economic downturn. As a result, the company announced his 2023 Top Tech Picks, Alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL),Workday (NASDAQ: Wednesday) and CrowdStrike Holdings (NASDAQ: CRWD) among them.
Alphabet: Ralph Schuckert, an analyst covering Alphabet (GOOG) (GOOGL), said that since 2000, search spending has been increasing year-on-year, and tech giants are “exploring the relative strength of search in their advertising budgets.” ‘, he pointed out. Compared to other advertising strategies such as social and connected TV, Alphabet may be the main beneficiary and continue to perform as the best strategy.
Schackart also noted that Alphabet (GOOG) (GOOGL) has diverse revenue streams, including Google Cloud. Google Cloud, which competes with Microsoft (MSFT) Azure and Amazon (AMZN) Web Services, could account for his 11% of revenue in 2023, growing 31% year over year.
As the company delays hiring, there is also an opportunity to cut costs.
On the downside, Shackert pointed to potential headwinds, including Google Cloud catching up with other cloud players, a further weakening of the global economy, and increased regulatory pressure on businesses.
With all that in mind, Schackart said it could go up as much as 20% from current levels.
Equinix: Overweight-rated Equinix (EQIX) analyst Jim Breen said data center real estate firms have “resilient” business models and data center growth despite a weak global economy. Demand remains “fundamentally healthy,” he said.
“In the face of global uncertainty, Equinix’s portfolio is highly diversified, mitigating the risk of supply and demand imbalances and supply chain disruptions, and our interconnected ecosystems are expected to deliver high recurring revenues. and drive low customer churn,” Breen wrote.
Breen added that Equinix’s (EQIX) stock is “attractive” at current levels given its long-term growth potential and the quality of its business model.
Equinix’s (EQIX) risks include the fact that the company is in a capital-intensive industry and about 30% of its revenue is invested in growth, Breen explained. Equinix (EQIX) is also in a “competitive” industry, which varies from market to market, which could lead to pricing and market share losses, analysts added.
Workday: Matthew Pfau, analyst for Workday (WDAY), said the software-as-a-service company has “strong strengths in both human capital management and the financial cloud space. “There is a moat of competition and a large addressable market,” he said.
Workday (WDAY), which recently reported strong Q3 results, is growing in both areas, with the human capital management market valued at $52 billion and the financial market valued at $73 billion. There are plenty of runways for growth.”
Given the fact that Workday’s (WDAY) software is considered “mission-critical” by its customers, which are primarily sold to large enterprises, Pfau believes that even if the global economy were to weaken significantly, Even if it does, it is unlikely to see a “significant increase” in churn. , because the current total retention level is approximately 98%.
Risks include longer sales cycles, delayed deals, and not enough traction in the financial sector, which is moving faster to the cloud than human capital management.
CrowdStrike Holdings: Overweight-rated CrowdStrike (CRWD) analyst Jonathan Ho said the cybersecurity firm has a “very recurring” business model while maintaining high growth rates given the industry. And pointed out that it has a significant operational level. He also has a large market to serve, expected to reach $126 billion by fiscal 2026. This suggests the company has a big runway to grow in the cloud he cybersecurity space.
With a free cash flow margin in excess of 30% in 2022 and expected to do the same next year, CrowdStrike (CRWD) “will weather a challenging macro environment and weather it better than most companies. ‘ writes Ho.
Risks include continued macroeconomic downturns. This results in longer sales cycles for smaller customers and split deals for larger customers. Emerging markets such as cloud, vulnerability management, data loss prevention, and identity could also pose problems given that CrowdStrike (CRWD) is less proven in these areas.
Smartsheet: Smartsheet (SMAR) Overrated Analyst Jake Roberge notes that the collaboration and work management company will likely continue to grow at an “amazing rate.” . Leverage leverage to boost revenue growth.
“Smartsheet expects to be free cash flow positive in 2022, and the company remains committed to its 10% free cash flow margin target by calendar year 2024,” Roberge said in a note to clients. wrote, adding that the company had scored more than 600 basis points. In the most recent quarter, operating margins have gradually improved.
Roberge said Smartsheet (SMAR), which competes with the likes of Microsoft (MSFT), monday.com (MNDY), Adobe (ASAN) and Asana (ASAN), is not immune to the current environment, but it will do well. He added that it is possible. Given its customer base, it outperforms its peers. Smartsheet deals primarily with large companies and has “limited” exposure to the tech sector, startups and Europe, all of which account for less than 15% of his total revenue.
Smartsheet (SMAR) increased the number of customers spending $1 million or more from 12 to 40 in the last two years, and annual recurring revenue growth from customers spending $50,000 or more increased 59% year-over-year Did.
We are also innovating our product portfolio with new features like Advance, Control Center and Data Shuttle. All of which helped it gain new footholds and maintain traction in the enterprise space.
And because most knowledge workers still use legacy tools like spreadsheets and email for collaboration, Smartsheet (SMAR) is eyeing a market worth $25 billion or more, says Roberge. explained Mr.
Aside from increased competition from the aforementioned companies, other risks for Smartsheet (SMAR) include a continued weakening of the global economy and the company’s “partial” reliance on its enterprise business to drive growth. Because it includes sales execution. Unexpected delays and extended sales cycles can impact revenue growth.
Five9: Five9 (FIVN) Overrated Analyst Matt Stotler says the company is one of the leaders in the cloud contact center space, facilitating more than 7 billion interactions annually with over 2,000 clients It says it does. While it has a wide range of competitors, including the likes of Zoom (ZM) and Microsoft (MSFT), Five Nine (FIVN) has many strengths, Stoller said, noting that the platform, “extensive” applications he has suite. , automation features, etc. , service delivery, and pre-built integrations that enable customers to use the software out-of-the-box.
“We believe these differentiators will enable Five Nine to fully capitalize on significant market opportunities and help the company maintain strong win rates and sustainable double-digit growth over the next few years.” Stoller wrote in a note to customers.
A major risk for Five9 (FIVN) involves competition, as the contact center software market is still “fragmented.” Other risks include the ability to execute strategic plans, such as moving into the corporate luxury market. This can result in longer sales cycles, higher costs, and less visibility when a deal is closed.
William Blair’s other top picks for 2023 include Dyntrace (DT), Toast (TOST), Procore Technologies (PCOR), Confluent (CFLT), Thoughtworks Holding (TWKS), SiTime Corporation (SITM), Sprinklr (CXM) ) It is included.