4 Rising Stars To Watch in 2012
Robert E. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Technology investors that remain concerned about more macroeconomic fears, but still want to have some growth exposure, should look for strong companies with a sustainable competitive edge.
I compiled a shortlist of high quality tech stocks that fits this criterion. If you're a serious technology investor looking to add some growth to your portfolio for 2012, I highly recommend adding these stocks to your watchlist.
Many recent technology IPOs didn't weather the storm of 2011, as macroeconomic fears took their toll on a number of these newly public companies. These upstart tech IPOs are particularly susceptible to these trends due to their reliance on future sales growth. In a tough economic climate, growth stocks are typically vulnerable because a large amount of their enterprise value is tied to future sales growth.
Although 2011 was a poor year for most of these companies, I think each name on this list could potentially rebound and have a strong comeback year in 2012.
LinkedIn (NYSE: LNKD)
While Facebook is the king of social media, LinkedIn has carved out a very brilliant niche by creating a social network geared towards white-collar business professionals. The company has strong business fundamentals and the long term, growth picture looks as solid as ever. According to Alexa.com, LinkedIn.com is the #13 most trafficked site in the United States and it's #14 globally.
Traffic and engagement are definitely on the rise, but LinkedIn is also generating profits for their shareholders, which is rare for such an early-stage company. If the company can continue to maintain strong operational excellence and expand into new, international growth markets... I see a very bright future ahead for LinkedIn in 2012.
Fusion-io (NYSE: FIO)
Enterprise SSD manufacturer Fusion-io is off to an amazing start so far in 2012, as demand for high-performance storage solutions is on the rise. Fusion-io manufactures and produces high-performance drives that can churn through massive amounts of data at lightning-fast speed, which is certainly appealing to their high-profile customers like Facebook and Apple.
Fusion-io continues to grow at a rapid pace, as their revenues grew from $36M in 2010 to an astounding $199M in 2011. The huge increase in sales speaks volumes to how well Fusion-io's products are being received in the marketplace. Not only is the company generating a signifigant amount of revenue, they are earning a significant amount of margin as well. Their gross margins (66.1% for Q2) are signifigantly higher than their industry peers SimpleTech (STEC) and OCZ Technology Group (OCZ).
The company is certainly the key player in the Enterprise SSD space and they have the clout to match it. Fusion-io's braintrust includes technology visionary Steve Wozniak and they continue to add strong engineering talent to their roster. Look for Fusion-io to deliver another strong year of profitable growth in 2012.
ServiceSource International (NASDAQ: SREV)
The cloud is certainly a hot growth area right now, with major players like Oracle (NASDAQ: ORCL) and Salesforce.com (NYSE: CRM) duking it out for market share. Although the cloud is dominated by the bigger players, you can't ever lose sight of the smaller players in this space. ServiceSource International is certainly one of those smaller cloud shops that tends to fly under the radar.
The company provides cloud solutions that drive renewals and subscriptions for a variety of technology companies. Their philosophy towards renewals is a "pay-for-performance" model where companies pay ServiceSource International based on renewal sales that it generates on their behalf. So far, the company's solutions definitely seem to be gaining some traction in the marketplace.
For 2011, the company generated $189.13M and they are very close to reaching profitability, which is definitely a good sign for an early-stage company. I think ServiceSource International is poised to have another strong year in 2012 and they could be a potential acquisition target. At a $1.07B market cap, SREV is definitely an intriguing buyout target for a company like Oracle or Salesforce.com.
Zillow.com (NASDAQ: Z)
As mortgage rates hit 30 year lows and home prices continue their downward slide, more and more consumers are actively looking at refinancing their homes or entering the real estate market. Zillow.com provides information about homes, real estate listings and mortgages, which certainly provides a huge amount of value right now given the state of the real estate market. According to Alexa.com, Zillow is currently #141 on the list of most popular visited websites in the United States.
Zillow also maintains a huge database with over 100,000,000 homes in the United States and they are constantly adding to this dataset. Although the company experienced a turbulent year in 2011 (shares down ~37%), I expect them to have a bounce back year in 2012. Growth names are always going to get punished in a tough macroeconomic environment and Zillow definitely felt that pain.
The sheer size of the United States real estate market and Zillow's brand-recongition provides a really unique growth opportunity. I definitely think Zillow is one to watch in 2012 because it's such a high-quality company that tends to fly under the radar, due to their relatively small revenue footprint. Don't let that fool you though. Zillow could feasibly double their revenues in 2012 and catch everyone by surprise.
Robert E. Irr III is a Financial Analyst who previously worked at a major technology company in the semiconductor industry. He now writes a tech investing blog at http://www.techinsidr.com.
The author holds a long position in NYSE:FIO.