5 stocks to watch in the last quarter of 2021
Sea — The e-commerce giant of Southeast Asia
Sector: E-commerce, Gaming, Financial Services
Market Cap: $187B
Return Since Going Public (3.91 Years): 117% Annualized
Company overview: Sea is the most valuable company in Southeast Asia — operating a gaming, e-commerce and financial services company.
Founded in 2009, Sea used its massively profitable gaming business, Garena, to launch Shopee, its e-commerce business in 2015.
- Shopee’s growth exploded out of the gate — quickly overtaking other e-commerce giants and growing to make up 43% of Sea’s sales today.
- Shopee is still unprofitable at the time of writing with Sea focusing on growth instead of profitability.
What makes Sea interesting? Sea operates in one of the largest and fastest-growing sectors — e-commerce. It’s also the dominant player in the interest Southeast Asia market
- Under-penetrated Southeast Asian e-commerce market — where online retail only makes up 5% of total sales compared to 13.6% in the US.
- Latin America expansion — In recent years, Sea has expanded into Latin America, the fastest-growing e-commerce market.
More growth ahead: At the time of writing, Sea is nearly a tenth of Amazon’s size but the company is still growing at a rapid pace. In its recent quarter, sales growth accelerated to 158% in the recent quarter — a tremendous growth rate for a company expected to make nearly $10b in sales in 2021.
CrowdStrike — Protecting the digital world from cyberattacks
Market Cap: $60b
Return Since Going Public (~2.27 Years): 94.7% Annualized
Company overview: CrowdStrike is one of the largest and fastest-growing US cybersecurity companies — which has achieved a 70% year-on-year growth rate for 14 consecutive quarters due to its superior technology and faster sales cycles. CrowdStrike has designed a low-friction sales process that can close large enterprise deals in a short period of time.
What makes CrowdStrike interesting? CrowdStrike is benefiting from several macro-tail winds including:
- Growing demand for cybersecurity solutions from a larger number of companies adopting work-from-home policies and increased digitization.
- Increased cybersecurity investment from the government and large organizations after several high-profile hacks in the past year.
- In an earnings call, CrowdStrike’s CEO emphasized the increased urgency in cybersecurity demand after the attacks.
- President Biden signed an executive order to improve the nation’s cybersecurity which has lead to billion-dollar commitments from large tech companies (i.e. Google, Microsoft).
FuboTV — The future of sports betting and sports media
Sector: Sports Betting, Advertising
Market Cap: $4B
Return Since Going Public (~0.95 Years): 143% Annualized
Company overview: FuboTV is a sports TV streaming platform with live sports, news and entertainment in the US/Europe market. Fubo was founded in 2015 as a soccer streaming service but pivoted to offering other sports and other major cable channels in 2017.
- Fubo is a riskier, high-growth company with large losses common among growth companies.
- Fubo surprised investors in its last quarter by beating expectations in its sales growth and subscriber growth by a wide margin — even raising its full-year outlook.
What makes FuboTV interesting? Given the higher costs involved with sports content, unlike traditional streaming services, Fubo makes money with recurring subscription fees, ads and a soon-to-launch sports betting service. Investors get exposure to two trends with Fubo:
- Connected TV advertising — the delivery of targeted ads through internet-connected TVs — is growing at a rapid rate and taking more ad spend away from traditional TV advertising.
- Sports betting market — which has picked up in momentum throughout the past few years with legalization in several states and more expected to come in the coming years.
All eyes on its sportsbooks: For investors, the most interesting part of Fubo’s story is its potential interactive sports streaming service — which has already received regulatory approval in several states — and is expected to launch in 2020.
Depending on its reception, the sports betting service could accelerate subscriber growth, increase revenue per user and give it a competitive advantage against other streaming services.
Lightspeed — The Canadian tech darling growing at the speed of light
Sector: E-commerce, POS software
Market Cap: $17.7B
Ticker: NASDAQ:LSPD (TSX:LSPD)
Return Since Going Public (~2.5 Years): 132% Annualized
Company overview: Canada-based Lightspeed provides point of sale and e-commerce software to services and retail businesses. The company was founded in 2005 and has been on an impressive growth streak in the past few years — growing its presence throughout the US and Europe.
- Went public on the Toronto Stock Exchange in 2019 and listed on the New York Stock Exchange in 2020.
- Known as one of Canada’s tech success stories alongside Shopify.
Growing with acquisitions: When it comes to Lightspeed, there’s one big thing you need to know about it, it’s highly acquisitive. Lightspeed has completed over 13 acquisitions — spending more than $1.2b acquiring 3 companies in 2021 alone. The company has seen significant sales growth using this strategy — which expands its product offering, geographic regions and opens it up to new markets.
- In the recent quarter (1QFY22), sales grew 220% partly driven by acquisitions.
- Lightspeed expects 2022 full sales of $510-530 million — up more than 4x from its 2020 sales in just two years.
The bigger opportunity: But the interesting narrative behind these acquisitions is the direction they’ll take Lightspeed in. While Lightspeed is known for helping restaurants, retail stores and other hospitality services digitize their businesses (i.e. digital payments, online inventory management), its recent acquisitions will help it expand further into e-commerce — which opens it up to a much larger market opportunity.
In 2021, acquired Ecwid, which has the 14th largest share of the e-commerce software market, giving it more firepower to go up against Shopify — one of the leading companies in the e-commerce space.
But making big acquisitions is only one part of the job. Being able to integrate these different businesses and extracting value out of them is where the difficult part begins. And if it fails to do this, Lightspeed could struggle with growing losses.
Oscar Health — An insurance technology company in the early innings
Market Cap: $3.6B
Return Since Going Public (~0.54 Years): -72% Annualized
Company overview: Oscar Health is a health insurance company built on a technology platform for a better customer experience. Unluckily for Oscar, the company went public at the height of the insurtech bubble in March 2021. Since then, its stock has fallen over 40% along with other insurtech companies like Lemonade and Clover.
- But the stock bottomed in mid-August, and is up nearly 40% after its IPO lockup expired.
- In a big vote of confidence, Oscar’s co-founder, Joshua Kushner, purchased over $74m in stock between late August and September.
Can technology win? Oscar Health is trying to win the market by providing a better product and service. The US healthcare industry is the largest and most expensive of any developed country. It also ranks among the lowest of any industry for net promoter scores — a gauge measuring a customer’s experience and the likelihood of them referring the product to someone else. With an NPS score of 30, Oscar stands out in an industry with an average of ~0.
With only 560k members, Oscar is still in the early stages compared to the largest health insurance company in the US, UnitedHealth Group — which has over 70 million members.
The Medicare opportunity: Enrolment in the United States’ Medicare Advantage plan has accelerated over the past decade — with 2.1 million people joining in 2020. This is the highest number of new enrolments in the past 20 years and these members are up for grabs by companies like Oscar.
As a growth company in its early stages, Oscar is losing millions each year with a focus on growth over profitability. It lost $406 million in 2020 but the company has a large cash balance of $2.3b supporting it.
Oscar is a high-risk, high-reward investment in a massive industry that’s ripe for digitization. In its current state, Oscar still has a lot to prove out to investors but the market potential makes it an interesting one to keep an eye on.