Overlook the IPO debacle
Daniel Miller (Uber Technologies Inc.): It was a fairly embarrassing time for the ridesharing industry as both Lyft and Uber crashed and burned during their initial public offering (IPO) in late March and May, respectively. Perhaps the IPOs were ill timed as the market was rattled amid China-U.S. trade tensions, but one thing is for sure: Uber's long-term legacy won't be defined by this early speed bump. That's why, if you believe in Uber's ability to become a one-stop shop for transportation and commerce long term, it's still a top growth stock to buy right now.
Despite Uber's lackluster IPO, there's no question the company's top-line growth has been impressive. Revenue jumped from $3.8 billion in 2016 to $7.9 billion in 2017, and then up to $11.3 billion during 2018. During the company's first public earnings presentation, the company's revenue was still 20% higher than the prior year, and many analysts believe that growth is sustainable in the near term. But, wait, there's more: During the first quarter, Uber's gross bookings and monthly active platform consumers (MAPCs) jumped 34% and 33%, respectively. The potential growth story is definitely intriguing for long-term investors.
There's plenty of reasons to be optimistic about Uber's potential to branch into different categories including food delivery, other unique mobility operations such as bikes, freight transportation, in addition to its traditional ridesharing business. The truth is, however, that the core business will revolve around ridesharing for the foreseeable future and that means heavy losses in the near term: Uber posted a hefty $1.012 billion loss during the first-quarter with its adjusted EBITDA loss more than tripling.
If investors believe in the company's ability to reach profitability, branch into new categories, expand globally and perhaps one day incorporate driverless vehicles into its business model, Uber is a growth stock to buy now and its IPO debacle should be overlooked.
Buy the cybersecurity meltdown
Nicholas Rossolillo(Palo Alto Networks): After Palo Alto Networks reported first-quarter 2019 results, its stock has endured a total thrashing. Shares are down about 25% since reaching all-time highs in early May, mostly erasing the 2019 rally. The story isn't as bad as it looks, though.
On the contrary, Palo Alto exceeded its previous guidance and posted 28% revenue growth and 26% adjusted earnings growth during the early months of 2019. Why the disillusionment among investors? Guidance for the next quarter came in below expectations -- revenue is expected to slow to "only" a 20% to 21% increase and adjusted earnings up 10%.
Granted, there are a few headwinds that can be blamed for the sluggish outlook relative to the recent past. Many of Palo Alto's customers are transitioning over to shorter annual contracts instead of multiyear ones, which is affecting revenue recognition; the trade war between the U.S. and China is also having a negative, albeit small, impact on the bottom line; and Palo Alto is shelling out cash to fund its string of acquistions over the last couple of years.
Nevertheless, this is a best-in-class security stock that just went on sale. At just 18.9 times trailing-12-month price to free cash flow, that is a more than agreeable price to pay for a company that's growing as fast as Palo Alto Networks is. Add in the growing importance of cybersecurity in today's digital age, it all adds up to a great long-term growth story worth holding on to for the foreseeable future.