Tech stocks embarked on an enviable bull run in 2023 despite macro headwinds such as rising interest rates, lower enterprise spending, a sluggish macro environment, and inflation. With the federal banks expected to lower interest rates multiple times in 2024, the rally for tech stocks should continue this year, too.
Here are two technology stocks that could beat the TSX index in 2024.
Snowflake stock
Valued at US$65 billion by market cap, Snowflake (NYSE:SNOW) provides an enterprise-facing cloud-based data platform in the U.S. and other international markets. Snowflake will benefit as enterprises are migrating data and workloads to its cloud-native data platforms from on-premise legacy systems.
For instance, its data cloud allows customers to consolidate data, drive meaningful business insights, and build data-driven applications.
These secular demand trends will help Snowflake add high-value clients to its customer base. In the fiscal third quarter (Q3) of 2024 (ended in October), Snowflake added 35 new customers who spend over US$1 million annually on the Snowflake platform. It now has 436 customers with an annual spending of US$1 million, an increase of 52% year over year.
Snowflake increased product sales by 34% year over year and ended Q3 with a net revenue retention rate of 135%. It suggests existing customers increased spending on the Snowflake platform by 35% in the last 12 months.
A company in hypergrowth mode, Snowflake is also beginning to post consistent profits. In fiscal 2021, its operating loss margin stood at 38%, and it is on track to end the current fiscal year with an operating margin of 7%. Once it benefits from economies of scale, Snowflake’s asset-light model will allow it to report operating margins of roughly 25%.
Analysts tracking Snowflake expect sales to rise from US$2.1 billion in fiscal 2023 to US$3.63 billion in fiscal 2025. Comparatively, adjusted earnings are forecast to rise from US$0.25 per share to US$1.13 per share in this period.
Priced at 176 times forward earnings, Snowflake stock is very expensive, but quality growth stocks command a premium. SNOW stock also trades at a discount of 10% to consensus price target estimates.
Docebo stock
Valued at $2 billion by market cap, Docebo (TSX:DCBO) stock surged 43% in 2023 and is up 300% since its IPO (initial public offering). Docebo operates as a learning management software company providing an AI (artificial intelligence) powered learning platform in North America, Europe, and other international markets. It offers an LMS (learning management system) to train internal and external workforces, partners, and customers.
In the last three quarters, Docebo has introduced almost 90 new features and capabilities, allowing it to increase customer engagement and retention rates. In Q3 of 2023, Docebo reported revenue of US$46.5 million, an increase of 26% year over year.
Docebo ended Q3 with 3,679 customers, compared to 3,235 customers in the year-ago period. Moreover, Docebo’s annual contract value stood at US$49,416 in Q3, up from US$44,561 in the prior year quarter.
With free cash flows of US$8.4 million, Docebo’s margin stood at 18%, up from less than 2% in the year-ago period. Docebo’s widening profit margins and cash flows should provide the tech company with the flexibility to reinvest in capital projects and target accretive acquisitions. Priced at 84 times forward earnings, Docebo stock trades at a discount of almost 25% to consensus price target estimates.
