The present and future of the internet is in cloud computing. This branch of computing is the backbone of digital transformation in modern enterprises. It enables businesses to access, store and process data and applications over the internet, rather than having to rely on in-house servers.
Of course, not all cloud computing businesses have made great investments as of late. The fact of the matter is, cloud computing, despite its advantages, is still costly for a lot of firms, and in times of economic uncertainty, not all firms are ready to make the switch over to the cloud. This means the market is highly competitive and customer acquisition is not always straightforward. Stepping away from the dynamics of the market for a second, there are also inflated valuation multiples to take into account.
Below are three sorry cloud computing stocks to sell in March while you still can.
Snowflake (SNOW)
Snowflake (NYSE:SNOW) is a software platform that essentially serves as a cloud-based data warehouse allowing customers to store and analyze large amounts of data. The cloud computing company received a “COVID bump” as the work-from-home trend became a reality for many white-collar professionals during the pandemic years. In the beginning, Snowflake essentially revolutionized data warehousing, most of which used to be on-prem, by establishing a cloud network around data storage and charging reasonable prices based on utilization. From 2019 to 2021, Snowflake was able to grow revenue in triple-digit YoY growth rates.
In both 2022 and 2023, we have seen revenue growth rates nearly halve. Slower growth is expected given the way the global economy has struggled with high inflation and elevated interest rates. Snowflake still remains pessimistic on growth. In their Q4 earnings print, while financial figures came in above Wall Street’s estimates, sales guidance for their upcoming fiscal year came in much lower than expected. Also, an announced CEO change hasn’t inspired investor confidence either.
Snowflake is not only trading at an insane P/E multiple, but the stock has already plummeted 20% on a year-to-date basis, making it one of the cloud computing stocks to be selling in March.
Fastly (FSLY)
Fastly (NYSE:FSLY) is another cloud computing stock investors should avoid. It is a cloud-based “edge computing” platform that provides content delivery network (CDN) and security services to customers such as Shopify (NYSE:SHOP) and Spotify (NYSE:SPOT). For those unaware, having a CDN helps customers to affordably store content and data on servers. Because a CDN is a “distributed network,” users of a website or app can quickly pull up content because they would have access to the closest server.
Fastly has, like many cloud companies, experienced falling top-line growth rates in recent years. The company’s recent Q4 earnings report failed to impress investors. Fourth quarter revenue figures came in below Wall Street’s estimates and 2024 guidance left much to be desired.
The cloud computing firm’s share price has fallen 28% YTD, and its high forward earnings multiple does not indicate the stock could recover anytime soon.
Datadog (DDOG)
Datadog (NASDAQ:DDOG) is a cloud-based monitoring and analytics platform that helps customers track the performance and health of their applications, infrastructure and services. Driving Datadog’s strong revenue growth throughout the years has been the rise of SMBs (small and medium-sized enterprises) and large enterprises utilizing cloud-based applications and services.
The company’s Q4 earnings report appeared as a return to form as revenue and guidance came in well-above Wall Street’s estimates. Still, Datadog’s forward price-to-earnings multiple makes little sense trading at 85.8x forward earnings. The stock itself has also exhibited meek performance, trading relatively flat on a year-to-date basis.
While Datadog is not the worst performing stock on this list, its underperformance when compared to rest of the market and high valuation makes it a must-sell in March.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
