3 Reopening Tech Stocks to Buy in August – Motley Fool

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Many tech stocks rallied last year as the pandemic generated tailwinds for the cloud, gaming, e-commerce, and remote work markets. However, many of those stocks fell out of favor this year as investors pivoted toward reopening plays that would benefit from rising vaccination rates.

Investors might initially search for reopening stocks in the pandemic-battered retail, travel, auto, and industrial sectors, but three tech sector stocks — Match Group (NASDAQ:MTCH), Square (NYSE:SQ), and Accenture (NYSE:ACN) — should also benefit from the same reopening trends.

Three people using their smartphones outside.

Image source: Getty Images.

1. Match Group

Match, the online dating giant that owns Tinder and other popular dating apps, experienced a slowdown during the pandemic as more people stayed at home. Its revenue rose 17% in 2020, compared to 19% growth in 2019, but analysts expect 21% growth this year as people start to date again.

During last quarter’s conference call, Match CEO Shar Dubey noted that the world still needed to deal with COVID-19 “for a little while longer,” but people were still consistently turning to its apps for “conversations, flirtations, first video dates, real-life dates.” Dubey also noted Tinder’s subscriber additions in the second quarter “were among some of the highest we’ve ever seen.”

Tinder’s direct revenue (from paid subscriptions and a la carte services) rose 26% year-over-year in the second quarter, accelerating from its 18% growth in the first quarter and 15% growth a year earlier. On a year-over-year basis, Tinder’s daily average swipes rose 13%, its daily average messages increased by 12%, and its conversations were 38% longer.

Those rising engagement rates, along with new features like Explore for meeting members with similar interests, should generate fresh tailwinds for Tinder as the pandemic ends. The growth of Azar and Hakuna Live, two social networking apps it gained from its purchase of Hyperconnect in South Korea, will also expand its non-Tinder portfolio and bring fresh video, audio, and AI features to its other apps.

Match’s stock has risen about 20% over the past 12 months, and it trades at nearly 50 times forward earnings. That price-to-earnings ratio is a bit high, but the pent-up demand for in-person dates could justify that slight premium.

2. Square

Square might initially seem like a pandemic stock, since its revenue rose 101% in 2020 and its stock has nearly doubled over the past 12 months. However, Square’s seller-oriented business, which processes payments and provides other merchant services, actually suffered a slowdown as smaller businesses closed down.

Square's Register.

Image source: Square.

Square’s revenue more than doubled only because its Cash App users bought more bitcoin (CRYPTO:BTC). Excluding bitcoin, Square’s revenue would only have risen 17% last year.

Square’s Bitcoin sales boosted its revenue, but generated lower margins than its transaction-based and seller businesses. As a result, Square’s gross margin (excluding its divestment of the food delivery platform Caviar) fell from 40.5% in 2019 to 28.8% in 2020.

Therefore, Square’s gross margins should expand again as more businesses reopen and use its higher-margin transaction-based and seller services. That stabilization should reduce Square’s overall dependence on bitcoin, which generated nearly half its revenue last year but remains a volatile and unpredictable growth engine as its prices fluctuate from month to month.

Square’s stock isn’t cheap at about 130 times forward earnings, but its robust growth rates, its Cash App’s expanding ecosystem, and its planned takeover of Afterpay (OTC:AFTP.F) to dominate the “buy now, pay later” space all support its premium valuation.

3. Accenture

Accenture, a diversified IT services giant that serves a wide range of industries, remained resilient throughout the pandemic. Its revenue rose 3% in 2020, as robust demand from its health and public services sector largely offset the pandemic-related disruptions across its other sectors.

Accenture’s other four major sectors (communications, media, and tech; financial services; products; and resources) gradually recovered in the first half of 2021 as its health and public services revenue rose.

By the third quarter, all five of its main sectors were growing year-over-year again, and its total revenue increased 11% year-over-year in the first nine months of the year. For the full year, it expects its revenue to rise 10%-11% in constant currency terms, and for its EPS to grow 15%-16%.

As vaccination rates rise and more businesses reopen, more companies will likely hire Accenture’s professionals to upgrade their cloud services, install cybersecurity software, and launch digital transformation projects for their websites and mobile apps. Companies that need to cut costs in a post-pandemic market could also outsource more jobs to Accenture’s remote and overseas employees.

Accenture’s stock rose about 40% over the past 12 months, and it might seem expensive at over 30 times forward earnings. But Accenture’s well-diversified, evergreen business — which withstood the pandemic and could grow even faster as the crisis ends — arguably deserves that higher valuation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.