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The technology services space has witnessed healthy growth since the pandemic, fueled by the rapid adoption of remote work, accelerating the global digital transition. Technological advancements like 5G, blockchain, artificial intelligence (AI) and machine learning (ML) have driven industry expansion. Also, increased concerns about data security have acted as a catalyst for industry growth.
AppLovin Corp., Spotify Technology S.A. and Duolingo, Inc. are poised to benefit from the prevailing trends.
About the Industry
The Zacks Technology Services industry encompasses companies involved in producing, developing and designing various software support, data processing, computing hardware and communications equipment. These offerings range from integrated powertrain technologies, advanced analytics, technology solutions and contract research services to semiconductor packaging and interconnect technologies, collaboration software, specialty printers and data acquisition and analysis systems.
This industry caters to consumer and business markets and serves diverse end markets and customer segments. Additionally, some industry players offer advanced analytics, clinical research services, data storage technology and solutions and technology-enabled financial services.
Factors Structuring the Future of Technology Services
Rising Demand Environment: The industry is mature, with demand for services remaining healthy over time. Revenues, income and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends.
Economic Recovery: The sector is a major beneficiary of the broader economy and service activities. According to the Bureau of Economic Analysis, GDP grew at an annual rate of 2.5% in 2023 compared with 1.9% growth in 2022. Economic activities in the non-manufacturing sector are in good shape. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for the past 14 months, indicating continued expansion.
Technological Advancement Takes Centre Stage: The global shift toward digitization creates opportunities in various markets, including 5G, blockchain and artificial intelligence (AI). The United States, a significant player in the IT sector, is positioned for growth owing to the widespread adoption of smart technologies and increased investments in security. Companies increasingly adopt AI, ML, blockchain and data science to gain a competitive advantage. According to market.us, the worldwide artificial intelligence market was worth $177 billion in 2023 and is anticipated to reach a staggering $2.75 trillion by 2032.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #82. This rank places it in the top 33% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and current valuation.
Industry Beats Sector and S&P 500
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has gained 57.1% over this period compared with the 25.8% rise of the broader sector and the 27.6% increase of the Zacks S&P 500 composite.
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing Technology Services stocks, the industry is currently trading at 67.1X compared with the S&P 500’s 13.86X and the sector’s 27.61X.
Over the past five years, the industry has traded as high as 72.18X, as low as 19.82X and at the median of 50.24X.
Technology Stock Picks
Here, we have presented three technology stocks expected to reap the benefits of a growing market. Each stock sports Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
AppLovin is a mobile advertising company that provides an advertisement platform for application developers. The company is currently benefiting from growth in the mobile app advertising market, technology upgradation and the launch of the AXON 2.0 engine. Its revenues increased 17% year over year in 2023. Net Income came in at $357 million with a net margin of 11% compared to a net loss of $193 million and a net margin of -7% in 2022.
The Zacks Consensus Estimate for 2024 earnings has been revised 59% upward to $2.48 per share in the last 60 days. Earnings are expected to increase more than 100% year over year in 2024. The stock has gained a whopping 337% in the past year.
Spotify provides audio streaming subscription services worldwide. The company is currently benefiting from the growth of subscribers and monthly active users (MAU). Spotify achieved MAU growth of 23% and premium subscriber growth of 15% in 2023, leading to year-over-year revenue growth of 13%.
The Zacks Consensus Estimate for 2024 earnings has been revised up 45.9% to $3.53 per share in the last 60 days. Earnings are expected to increase more than 100% year over year in 2024. The stock has appreciated 93% in the past year.
Duolingo is a popular language-learning platform offering interactive lessons in numerous languages. Utilizing gamified techniques, it engages users with exercises, quizzes and challenges. Its user-friendly interface makes language acquisition enjoyable and accessible for learners worldwide. The company’s revenues increased 44% year over year in 2023. Net Income came in at $16.1 compared to a net loss of $59.6 million in 2022.
The Zacks Consensus Estimate for 2024 earnings has been revised favorably by more than 48.4% in the last 60 days to $1.38 per share. The Zacks Consensus Estimate for 2024 earnings has been revised 45.9% upward in the last 60 days. Earnings are expected to increase more than 100% year over year in 2024. The stock has gained 54% in the past year.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights AppLovin, Spotify and Duolingo
For Immediate Release
Chicago, IL – April 2, 2024 – Today, Zacks Equity Research discusses AppLovin Corp. (APP - Free Report) , Spotify Technology S.A. (SPOT - Free Report) and Duolingo, Inc. (DUOL - Free Report) .
Industry: Technology Services
Link: https://www.zacks.com/commentary/2248467/3-stocks-to-buy-from-the-prospering-technology-services-market
The technology services space has witnessed healthy growth since the pandemic, fueled by the rapid adoption of remote work, accelerating the global digital transition. Technological advancements like 5G, blockchain, artificial intelligence (AI) and machine learning (ML) have driven industry expansion. Also, increased concerns about data security have acted as a catalyst for industry growth.
AppLovin Corp., Spotify Technology S.A. and Duolingo, Inc. are poised to benefit from the prevailing trends.
About the Industry
The Zacks Technology Services industry encompasses companies involved in producing, developing and designing various software support, data processing, computing hardware and communications equipment. These offerings range from integrated powertrain technologies, advanced analytics, technology solutions and contract research services to semiconductor packaging and interconnect technologies, collaboration software, specialty printers and data acquisition and analysis systems.
This industry caters to consumer and business markets and serves diverse end markets and customer segments. Additionally, some industry players offer advanced analytics, clinical research services, data storage technology and solutions and technology-enabled financial services.
Factors Structuring the Future of Technology Services
Rising Demand Environment: The industry is mature, with demand for services remaining healthy over time. Revenues, income and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends.
Economic Recovery: The sector is a major beneficiary of the broader economy and service activities. According to the Bureau of Economic Analysis, GDP grew at an annual rate of 2.5% in 2023 compared with 1.9% growth in 2022. Economic activities in the non-manufacturing sector are in good shape. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for the past 14 months, indicating continued expansion.
Technological Advancement Takes Centre Stage: The global shift toward digitization creates opportunities in various markets, including 5G, blockchain and artificial intelligence (AI). The United States, a significant player in the IT sector, is positioned for growth owing to the widespread adoption of smart technologies and increased investments in security. Companies increasingly adopt AI, ML, blockchain and data science to gain a competitive advantage. According to market.us, the worldwide artificial intelligence market was worth $177 billion in 2023 and is anticipated to reach a staggering $2.75 trillion by 2032.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #82. This rank places it in the top 33% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and current valuation.
Industry Beats Sector and S&P 500
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has gained 57.1% over this period compared with the 25.8% rise of the broader sector and the 27.6% increase of the Zacks S&P 500 composite.
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing Technology Services stocks, the industry is currently trading at 67.1X compared with the S&P 500’s 13.86X and the sector’s 27.61X.
Over the past five years, the industry has traded as high as 72.18X, as low as 19.82X and at the median of 50.24X.
Technology Stock Picks
Here, we have presented three technology stocks expected to reap the benefits of a growing market. Each stock sports Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
AppLovin is a mobile advertising company that provides an advertisement platform for application developers. The company is currently benefiting from growth in the mobile app advertising market, technology upgradation and the launch of the AXON 2.0 engine. Its revenues increased 17% year over year in 2023. Net Income came in at $357 million with a net margin of 11% compared to a net loss of $193 million and a net margin of -7% in 2022.
The Zacks Consensus Estimate for 2024 earnings has been revised 59% upward to $2.48 per share in the last 60 days. Earnings are expected to increase more than 100% year over year in 2024. The stock has gained a whopping 337% in the past year.
Spotify provides audio streaming subscription services worldwide. The company is currently benefiting from the growth of subscribers and monthly active users (MAU). Spotify achieved MAU growth of 23% and premium subscriber growth of 15% in 2023, leading to year-over-year revenue growth of 13%.
The Zacks Consensus Estimate for 2024 earnings has been revised up 45.9% to $3.53 per share in the last 60 days. Earnings are expected to increase more than 100% year over year in 2024. The stock has appreciated 93% in the past year.
Duolingo is a popular language-learning platform offering interactive lessons in numerous languages. Utilizing gamified techniques, it engages users with exercises, quizzes and challenges. Its user-friendly interface makes language acquisition enjoyable and accessible for learners worldwide. The company’s revenues increased 44% year over year in 2023. Net Income came in at $16.1 compared to a net loss of $59.6 million in 2022.
The Zacks Consensus Estimate for 2024 earnings has been revised favorably by more than 48.4% in the last 60 days to $1.38 per share. The Zacks Consensus Estimate for 2024 earnings has been revised 45.9% upward in the last 60 days. Earnings are expected to increase more than 100% year over year in 2024. The stock has gained 54% in the past year.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.