The stock market is full of companies with innovative ideas, but there are also many companies that are building on past successes. Ironically, the companies that change the world are the ones that are currently for sale and present an investment opportunity.

Two companies with the vision and the product to change the future are Cloudy (NYSE:NET) and Snowflake (NYSE: SNOW). Each operates in the tech space and was beaten 50% and 30% respectively from all-time highs. As fourth quarter earnings loom, is now the time to buy these two innovators?

Cloudy

Cloudflare’s mission is simple: “Build a Better Internet”. It accomplishes this by providing two factors that every customer wants: speed and security. By powering internet requests through its 250 data centers in more than 100 countries, Cloudflare can offer its customers unprecedented speed. No matter where a user is accessing a website from, Cloudflare routes the request through the nearest data center. Additionally, by running the website through Cloudflare’s servers, businesses no longer have to purchase expensive network equipment to handle traffic. Instead, Cloudflare supports all the capacity a business needs.

On the security side, Cloudflare’s servers protect websites and their visitors against multiple forms of malicious attacks. In fact, Cloudflare earned the highest possible score in 15 different categories when its Distributed Denial of Service (DDoS) attack prevention solution was compared to other vendors. It also prevents bots from fetching content and can secure proprietary application program interfaces (APIs).

What Cloudflare does can be complex, but understanding its finances is much simpler. Cloudflare has grown revenue over the past five years at a compound annual growth rate (CAGR) of 50% and continued this trend by increasing revenue by 51% year-over-year (YOY) over the past five years. third trimester. Customers also spent more in the third quarter compared to a year ago, as evidenced by its 124% net revenue retention rate. A key metric to watch during Q4 revenue is the number of large customers — those spending more than $100,000 per year — that Cloudflare has. In the third quarter, it was 1,260, up 71% from the year-ago quarter.

Despite its strong growth, Cloudflare is not profitable. When evaluated from a generally accepted accounting principles (GAAP) perspective, it lost $107.3 million in the third quarter, resulting in an abysmal net profit margin of -62%. That shouldn’t worry investors at this time though, as Cloudflare sees a huge $100 billion market opportunity emerging by 2024. Cloudflare has the technology to make a huge difference to how the internet works across the world, and investors would be wise to take advantage of it. the depressed share price.

Snowflake

Businesses often generate massive amounts of useful data but have problems storing and processing it. Snowflake’s solutions help you with both tasks. With its data lake offering, companies can store data across multiple clouds and then access all the information through a single program. With this solution, companies can avoid getting locked into unreasonable contracts from cloud providers because they can simply migrate to another platform if something goes wrong.

Snowflake can feed semi-unstructured data into data pipelines, freeing up engineers to perform more analysis rather than getting data in the right format. It also speeds up processes, giving businesses real-time information rather than old information. Authentic parts — the owner of NAPA Auto Parts — used Snowflake’s solution to provide inventory updates to on-premises systems for its multi-million SKU (stock keeping unit) parts catalog every nine minutes , instead of 24 hours. If a company has data, Snowflake offers a solution to manage and use it.

Image source: Getty Images

The growth recorded by Snowflake during the third quarter was incredible. Revenue rose 110% year-over-year to $312.5 million, and remaining performance obligations rose 94% to $1.8 billion. Even more impressive was its 173% net retention rate, meaning that for every dollar a customer spent in last year’s quarter, they spent $1.73 this quarter. Since Snowflake is consumption-based rather than subscription-based, the retention rate gives investors key insights into how many customers are using it.

Snowflake had 148 customers who spent over $1 million in the last twelve months; investors should watch this metric as well as the retention rate during the fourth quarter results to determine how Snowflake is doing. Management expects revenue growth of around 95% in the fourth quarter, but could easily top that number if Snowflake lands a big deal during the year-end spending spree some companies are embarking on.

One last word

Cloudfare and Snowflake are best in class and have huge growth prospects ahead. As a result, everyone is highly valued.

PS SNOW ratio data by YCharts.

Even though each has come down from its peak valuation, 73 and 50 times sales are not cheap. As a result, wild swings in valuations can occur and investors have to endure constant market commentary calling these companies overvalued – which they very well could be. By playing the long game, investors buy the stock at a high price now in exchange for future growth.

If investors can meet these challenges, the future business prospects for both are undeniable. It might be a good idea to take advantage of market selling prices and buy two of the most innovative companies on the market today.