Market correction: 2 top tech stocks down 63% and 78%

Wall Street is overlooking the long-term value of these businesses.

| More on:
a group of nine people occupy nine windows on a zoom call wth a view of the computer screen. All nine of them are looking down or are making serious faces as though they are discussing bad news.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Since peaking in November, the tech-heavy Nasdaq Composite has dropped nearly 15%, putting the index in correction territory. And many individual stocks have fallen much further. For instance, shares of DocuSign (NASDAQ: DOCU) and Zoom Video Communications (NASDAQ: ZM) have dropped 63% and 78%, respectively, from their highs, as Wall Street continues to weigh the impact of high inflation and potential interest rate hikes on corporate profitability.

Many investors have also categorized DocuSign and Zoom as "pandemic stocks," citing slowing revenue growth as cause for alarm. But, arguably, nothing could be further from the truth. Both businesses play an important role in digital transformation, and their services should only become more valuable in the years ahead. Better yet, both stocks look relatively cheap right now.

Here's what you should know. 

1. DocuSign

Agreements are an essential part of any business. Organizations form agreements with customers, employees, and partners, but traditional paper-based processes -- such as printing, signing, and taking action on a physical document -- are slow, costly, and prone to errors. With its Agreement Cloud, DocuSign aims to accelerate and simplify workflow by digitizing and automating the agreement process. Its platform spans over a dozen applications, and it integrates with over 350 other technologies.

At its core is DocuSign eSignature, a product that allows documents to be signed in a digital, secure, and legally valid manner, on virtually any device. But the company's portfolio also includes tools for automatic contract generation, AI-powered analytics and risk scoring, and payment collection. Collectively, those tools help clients work more quickly and efficiently.

Founded in 2003, DocuSign is a pioneer in the e-signature industry, and the company has parlayed its first-mover status into a robust competitive edge. DocuSign ranks as the No. 1 e-signature tool, holding over 70% market share, and its platform boasts a net promoter score (NPS) of 72. For context, the NPS is designed to measure the customer experience, and 50 is an impressive score, but an NPS of 70 (or higher) is considered world class. 

Not surprisingly, DocuSign's strong competitive position and excellent rapport with customers have fueled impressive growth. Over the past year, the company's customer base expanded 34% to 1.1 million; revenue soared 51% to $2 billion; and free cash flow skyrocketed 125% to $418.7 million. More importantly, management puts its addressable market at $50 billion, meaning DocuSign still has plenty of room to grow. And with the stock trading at 11.4 times sales -- significantly cheaper than its three-year average of 22 times sales -- now could be a good time to buy a few shares.

2. Zoom Video Communications

Zoom became a household name during the pandemic. Its core product, videoconferencing app Zoom Meetings, helped socially distanced friends and families stay in touch, while allowing students and employees to learn and work remotely. However, Zoom is more than a videoconferencing application; it's a communications company, and its platform also includes a cloud-based phone system (Zoom Phone) and a software-based collaboration suite for hybrid workforces (Zoom Rooms). 

While some employees have already returned to the office, remote work is likely here to stay. In fact, research firm Gartner believes that 48% of employees will work remotely at least part time in a post-COVID world, up from 30% prior to the pandemic. And Gartner says that by 2024 just 25% of enterprise meetings will take place in person, down from 60% in 2019. Both of those trends are good news for Zoom and its shareholders.

Better yet, Zoom is actually becoming more popular. In the videoconferencing space, the company captured 49% market share in 2021, up from 26% in 2020. Even more impressive, Zoom is actually the fifth most popular enterprise application of any kind, according to Okta's 2022 Business at Work report.

In the most recent quarter, Zoom hit 512,100 customers, up 18%. And the company has kept its expansion rate above 130% for the last 14 quarters, meaning the average customer consistently spends 30% more. Fueled by that stickiness, revenue soared 100% to $3.9 billion over the past year, and free cash flow rose 59% to $1.7 billion. More importantly, management puts its market opportunity at $91 billion by 2025, leaving plenty of room for future growth. And with the stock trading at 9.7 times sales -- near its cheapest valuation since going public in 2019 -- now could be a good time to take a closer look at this beaten-down tech company. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Trevor Jennewine owns Okta. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended DocuSign, Okta and Zoom Video Communications. The Motley Fool Australia has recommended Zoom Video Communications. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 

More on International Stock News

A man looking at his laptop and thinking.
International Stock News

Why Alphabet stock was sliding today

Let's take a look.

Read more »

A man looking at his laptop and thinking.
International Stock News

Nvidia's stock was down despite its amazing earnings. Here's what history says is coming next

Although it might seem to defy logic, it's not an uncommon phenomenon.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Nvidia share price slips despite 94% revenue growth

Q3 earnings beat expectations, but what about guidance?

Read more »

high, climbing, record high
International Stock News

Could the S&P 500 Index hit 6,500 by the end of 2025?

Could the index climb higher?

Read more »

a small child holds his chin with his head on the side in a serious thinking pose against a background of graphic question marks and a yellow lightbulb.
International Stock News

Is it too late to buy Nvidia shares?

Is Nvidia stock a buy ahead of its third-quarter earnings report tomorrow?

Read more »

a group of people stand examining a large glowing cystral ball held in the hands of one of the group members while the others regard it with various expressions of wonder, curiousity and scepticism.
International Stock News

Here's what to expect from Nvidia on November 20

Can Nvidia score another win?

Read more »

Two people lazing in deck chairs on a beautiful sandy beach through their hands up in the air.
International Stock News

2 no-brainer Warren Buffett stocks to buy right now

While replicating Buffett's success isn't possible, there are a handful of his investments that are no-brainer buys.

Read more »

A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
International Stock News

3 reasons to buy Nvidia stock before November 20

This week marks a big moment for tech investors as perhaps the most anticipated earnings of the year will be…

Read more »