The Nasdaq composite it fell into a bear market in March and the tech index has not yet reached a new high. But that hasn’t stopped wealthy investors from piling up in growth stocks.
In May, Fred Ernest Ehrsam III, managing partner of cryptocurrency investment firm Paradigm, invested $ 75 million in Global Coinbase (CURRENCY 7.73%). This is a particularly bullish nod for the company because Ehrsam is a member of the Coinbase board of directors. Around the same time, Altimeter Capital Management’s hedge fund manager Brad Gerstner invested $ 2 million in Confluent (CFLT 7.59%), and then doubled to another $ 618,000 in June. Altimeter Capital Management now owns more than 10% of the company.
Is it time to buy these growing stocks that millionaires are buying down?
1. Global Coinbase
The Coinbase brand is synonymous with cryptocurrency. The company operates the largest cryptocurrency exchange in the United States by trading volume, helping retail and institutional investors trade, store and stake crypto assets. The company also provides blockchain infrastructure services via Coinbase Cloud, allowing developers to build crypto applications.
Coinbase splits its business into two main revenue segments: transaction fees and subscription and service fees. The first segment is based on the price and quantity of cryptocurrencies bought or sold and currently accounts for the vast majority of total revenue. To that end, the ongoing cryptocurrency market crash has been devastating for Coinbase.
In the second quarter, users with monthly transactions (MTUs) increased 2% to 9 million from the previous year, and trading volume fell 53% to $ 217 billion. And over the past year, revenue only increased 17% to $ 5.8 billion, and the company reported a GAAP loss of $ 2.03 per diluted share, down significantly from a GAAP profit of $ 8.41. per share diluted in the previous year.
On the bright side, the subscriptions and services segment, which offers more stability than volatile transaction fees, is growing rapidly. In the second quarter, 67% of MTUs engaged in non-investment products, up from 20% two years ago, and revenue from subscriptions and services increased 44% to $ 147 million. This trend has been driven, in large part, by greater involvement with staking services, as a particularly popular asset Cardano And Solana.
More importantly, CEO Brian Armstrong has an admirable perspective on the recent recession, framing it as an opportunity to build for the future. And Coinbase is doing just that. The company recently introduced a Web3 browser and a new self-managed Web3 wallet, which allows users to easily interact with decentralized applications (dApps) and decentralized finance services (DeFi) within the Coinbase app. This positions the company as a key player in the burgeoning cryptocurrency economy.
Here’s the conclusion: Coinbase is, without a doubt, a risky investment simply because its fate depends entirely on the adoption of cryptocurrency, a relatively new and under-regulated asset class. But with Coinbase shares down 81% from its high, trading at just 1.9x sales, cryptocurrency bulls should seriously consider buying a few shares right now.
Businesses use multiple software applications every year, and the data created by those applications is often stored in disparate systems across public clouds and private data centers. But those who manage to unify and make sense of that data will gain an edge over their peers, and Confluent helps its clients achieve this.
Confluent’s platform captures data in real time, creating a flow of information that flows between all business applications and systems. That real-time data can then be used by analytics platforms such as Snowflakeobservability software such as Datadogor customized applications to help companies make informed decisions that improve the customer experience and promote operational efficiency.
Financially, Confluent is growing rapidly at the top of the line, although it is still losing money at the bottom line. Revenue increased 66% to $ 488 million in the past year, while free cash flow fell to a negative $ 143 million, down from the previous year’s $ 98 million loss. However, Confluent has nearly $ 2 billion in cash and marketable securities on its balance, meaning it can afford to invest aggressively in growth.
On this note, Confluent saw its customer base increase 46% to 4,120 in the last year and the average customer spent up north by 30% more. This strong adoption bodes well for the future, and Confluent should continue to benefit from it as more and more companies realize the value of bringing real-time data into their applications.
Last year, management valued its market opportunity at $ 91 billion by 2024, which means Confluent has barely scratched the surface. And with the share price 52% lower than its high, trading at a modest 12.8 times sales, now seems like a good time to buy a small position in this growing stock.
Trevor Jennewine has no position in any of the titles mentioned. The Motley Fool has positions and recommends Coinbase Global, Inc., Confluent, Inc., Datadog, Snowflake Inc., and Solana. The Motley Fool has a disclosure policy.