There are generally two types of tech companies: mature ones that tread water with buybacks and dividends, and growing ones that spend most of their cash expanding their ecosystems.
Dividend-paying tech stocks can be great defensive investments, but most of them don’t drum up much excitement about the future. So today, let’s focus on three higher-growth companies that will likely change how people do things in the future: Unity Software (NYSE:U), Facebook (NASDAQ:FB), and Salesforce (NYSE:CRM).
In the past, developers often coded a video game’s graphics, lighting, physics, sounds, animations, and user interfaces separately. They also had to adjust and adapt those features for every different gaming platform. That process was buggy, expensive, and time-consuming.
But back in 2005, Unity bundled all those tools together with its first game development platform. Today, developers can create entire games within Unity and simultaneously launch them across over 20 different platforms without worrying about compatibility issues. Over 50% of all games across PCs, gaming consoles, and mobile devices now run on Unity.
Unity also enables developers to monetize their games with in-app ads, in-app purchases, and multiplayer features. It helps developers better understand their audiences with analytics tools, and it’s been gradually expanding its toolset for new markets like augmented reality, virtual reality, and 3D design applications.
Unity’s revenue rose 43% to $772.4 million in 2020, and it anticipates another 29%-31% growth this year. It’s still unprofitable, and the stock isn’t cheap at 27 times this year’s sales. However, the bulls will claim Unity deserves that premium valuation since it’s well-poised for long-term growth by simplifying and accelerating the development of immersive digital worlds.
Facebook’s Oculus VR uses Unity to develop VR games for its Oculus headsets. The Oculus business accounted for less than 3% of Facebook’s revenue last quarter, but it’s growing rapidly.
Facebook could ship at least three million Quest 2 headsets this year, according to SuperData, making it the world’s top stand-alone VR device.
Last May, Facebook said its first Quest headset had generated over $100 million in content sales within the first year. It updated that figure to $150 million last September. It also acquired a few of Oculus’ top developers over the past two years to strengthen its first-party VR gaming business.
Facebook’s VR business is still tiny compared to its advertising business, but it’s paving the way toward CEO Mark Zuckerberg’s stated goal of turning VR into the “next computing platform,” wherein Facebook’s users interact with each other in virtual spaces instead of PCs and mobile devices.
It will also complement Facebook’s upcoming expansion into the AR market with smart glasses, which could blur the lines between the physical and digital worlds.
Facebook already changed, for better or worse, how we interact with each other and how brands promote their products. Analysts expect those core strategies to boost its revenue and earnings by 35% and 30%, respectively, this year. But gazing further into the future, Facebook’s nascent VR and AR ecosystems could once again change that status quo over the next decade.
Salesforce’s cloud-based CRM (customer relationship management) platform changed how large companies managed their sales teams. Instead of storing data across different computing platforms, it launched a cloud service that retained all that information in a centralized location and easily connected sales teams to customers.
That early-mover’s advantage has made Salesforce the world’s top CRM provider over the past eight years, according to IDC. It then leveraged the strength of its CRM business to expand its cloud ecosystem with additional sales, marketing, analytics, and data visualization services.
Salesforce’s services now help companies reduce their overall dependence on human employees, automate repetitive tasks, and gather more data to make informed AI-driven decisions. This efficiency-oriented business model has repeatedly insulated Salesforce from economic downturns in the past.
Salesforce expects to more than double its annual revenue to $50 billion by fiscal 2026, which would represent a CAGR of 18.7% between 2021 and 2026. It expects the total addressable markets for all its services (sales, service, marketing & commerce, platform, and analytics & integration) to expand throughout those five years as more companies digitize their businesses.
Salesforce’s stock is still reasonably valued at 55 times forward earnings and eight times this year’s sales. Its near-term earnings growth could be affected by its upcoming takeover of Slack (NYSE:WORK), but its long-term prospects still look incredibly bright.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.