2 growth stocks to buy now

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Lemonade (NYSE: LMND) and Focus on video communications (NASDAQ: ZM) fell 53% and 33%, respectively, from their 52-week highs. These losses are certainly stinging in the short term, but there is a silver lining.

The future looks bright for these two tech companies as they gain traction with consumers. More importantly, investors can now buy a few stocks at a reduced price. Here’s why that sounds like a smart move.

Image source: Getty Images

1. Lemonade

Lemonade disrupts the $ 5,000 billion insurance industry. Instead of agents and actuaries, the company relies on big data and artificial intelligence to engage consumers, quantify risk, and manage various parts of its business. In fact, Lemonade collects around 100 times more data than traditional insurance companies.

Why is this important? Data is the name of the game when it comes to insurance coverage. Over time, Lemonade’s advantage should allow it to underwrite policies more accurately and detect fraud more effectively, both of which should keep claims payments low. In other words, Lemonade’s gross loss ratio (i.e. the percentage of premiums paid in claims) should be lower than average, making it more efficient than the traditional insurance company. .

To add to that, using AI-powered chatbots to sell policies and process claims, Lemonade only needs one employee per 1,700 customers, while typical insurance companies have one employee for every 1,700 customers. 150 to 450 clients. This keeps Lemonade’s payroll costs low, saving the company additional savings.

Together, these benefits help Lemonade provide customers with a faster and cheaper experience. Unsurprisingly, this has translated into strong demand.

Metric

Q1 2019 (TTM)

Q1 2021 (TTM)

TCCA

Customers

371,571

1,096,618

72%

Gross profit

$ 4.4 million

$ 22.1 million

124%

Data source: Lemonade filings with the SEC. TTM = 12 rolling months. CAGR = compound annual growth rate.

Going forward, Lemonade is well positioned to maintain this momentum. The company recently announced Lemonade Car, an auto insurance product slated for launch in the near future. This brings its addressable market to over $ 400 billion in the United States alone.

Additionally, current Lemonade customers already spend $ 1 billion on auto insurance each year (along with other insurance companies). So by bundling home and auto insurance policies, management believes the business can unlock considerable value in the existing business, not to mention the additional customers this new product could attract.

That’s why this growth stock looks like a smart buy right now.

2. Focus on video communications

Zoom needs little introduction. Last year, Zoom achieved something few companies do: its brand name has become a verb. The company’s communication platform was widely adopted during the pandemic, as employees and students used video chat to work and learn remotely.

In fact, Zoom’s user count jumped 470% in fiscal 2021 (ended January 31, 2021), and this strength continued into fiscal 2022. In the first quarter, Zoom reached 1,999 customers who pay more than $ 100,000 per year, up 160% from the previous one. year. And the company maintained a net expansion rate of over 130% for the 12th quarter in a row, indicating a 30% increase in average customer spend.

Unsurprisingly, this momentum translated into stunning financial performance. In fact, Zoom hit $ 1 billion in annual recurring revenue faster than any software as a service company in history.

Metric

Q1 2020 (TTM)

Q1 2022 (TTM)

TCCA

Income

$ 392.4 million

$ 3.3 billion

189%

Free movement of capital

$ 37.3 million

$ 1.6 billion

552%

Data source: Ycharts. TTM = 12 rolling months. CAGR = compound annual growth rate.

But the pandemic will not last forever. What will happen to Zoom when things get back to normal? Nothing – I think this business will be fine. Zoom has established itself as the market leader, surpassing CiscoWebex in the total number of unique customers and users. And CEO Eric Yuan is a solid leader, as evidenced by his 97% approval rating on Glassdoor.

More importantly, I don’t think the future of working and learning looks like the past. Research of Gartner suggests that 48% of employees will work remotely at least part-time after the pandemic, up from 30% before the pandemic. And only 25% of company meetings will take place in person, up from 60% today. Either way, this creates an opportunity for Zoom to disrupt traditional work and business travel.

Finally, Zoom recently made a bold acquisition. The company bought Five9, bringing its Contact-Center-as-a-Service (CCaaS) software in-house. At $ 14.7 billion in shares, the acquisition was admittedly expensive, but I like the initiative. The move expands the reach of Zoom’s communications tools, adding another use case to its platform. It also adds $ 24 billion to the company’s market opportunities, bringing the total to around $ 90 billion.

That’s why it seems now is a good time to buy this growth stock.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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