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2 Growth Stocks to Buy for the Big Data Revolution

The world has entered a new age where everyone and everything with a digital presence generates data. Technology is helping companies use it to deliver products and services that make life more convenient, and that's becoming increasingly valuable.

Facebook is a familiar example. It built a $1 trillion company by collecting consumer data and using it to sell targeted advertising. That's valuable for businesses, and it puts products in front of consumers that they want to see.

But data can take many forms. The pandemic accelerated the hybrid work model where more employees are completing tasks from home, so aggregating data and workflows across big organizations are more important than ever. Since data has become fundamental to our lives, investment in companies capitalizing on technology today could yield prized returns for your future.

Image Source: Getty Images.

Workiva (NYSE: WK) is delivering powerful solutions with data aggregation for many companies. Alternatively, Splunk (NASDAQ: SPLK), ingests enormous amounts of machine data to feed useful information to the end-user in real-time.

Let's take a look at why Workiva and Splunk are promising ways to play the big data revolution.

1. Workiva transforms the remote workforce

Companies typically hire more employees as they grow larger, which creates challenges for managers who must keep track of workflows and results. This challenge is greater in organizations where more work is done digitally because it can involve tons of applications, which can limit visibility.

Workiva recognized the problem and built a platform that brings the data from all of those applications together in one place, offering a high-level view of the entire organization. Now, large companies can easily pull financial data across different platforms to assist with accounting, auditing, and even filing reports with the Securities and Exchange Commission.

Workiva's top customer spending bracket of $150,000 per year is generating the most growth, indicating that the bulk of platform users are the largest organizations.

Metric

Q2 2018

Q2 2021

CAGR

Total customers

3,222

3,949

7%

Customers spending more than $100,000 annually

366

952

37%

Customers spending more than $150,000 annually

161

500

45%

Data source: Company filings. CAGR = Compound Annual Growth Rate.

The company's revenue retention rate was 111.6% in the second quarter. Its revenue stream expanded by drawing increased spending from existing customers. This places less pressure on Workiva to acquire new customers through high sales and marketing expenditure, which separates it from many other tech businesses.

Workiva has grown subscription revenue at a compound rate of 20% per year since 2019, but growth accelerated to 29% in the second quarter, likely because the hybrid work model has stuck around. With gross margins above 75%, the company could be extremely profitable once it achieves scale, and that makes it a great bet for the long term.

Image source: Getty Images.

2. Splunk is the data-to-everything platform

That's not just a marketing slogan. Given the broad range of companies Splunk serves, it can adapt its platform to process data from any industry. Currently, 82% of the Fortune 500 companies use Splunk's services. From food services to Formula One racing, Splunk's strength is absorbing high volumes of data and feeding real-time insights to the end-user, on a convenient and readable display.

For example, car manufacturer Honda uses Splunk's machine learning to aggregate data and predict problems in real-time before they affect manufacturing at its facility in Alabama. The plant has an open floor plan without segregated departments, so a failure in one area can hit the entire stream of processes, triggering costly delays.

Artificial intelligence and machine learning are core to Splunk because they allow for data analysis on a scale that wouldn't be possible with manual human input.

Splunk recently reported its fiscal full-year results for 2021, revealing $2.2 billion in revenue. It failed to deliver revenue growth compared to fiscal 2020, but there's a high-growth story emerging in its cloud services segment, which is quickly becoming a significant portion of Splunk's business.

Metric

Fiscal 2019

Fiscal 2021

CAGR

Cloud services revenue

$171.2 million

$554.1 million

80%

Percentage of total revenue

9.5%

24.8%

N/A

Data source: Company filings.

Splunk takes everything its customers love about its data analytics platform and delivers it in the cloud for a more accessible experience. Additionally, it's helping businesses migrate to the cloud with holistic solutions that include cybersecurity and monitoring tools.

Wall Street analysts remain bullish on Splunk, with a consensus overweight rating and no analysts recommending selling the stock. They also expect the company to return to overall growth in fiscal 2022 with $2.6 billion in revenue, followed by over $3 billion in fiscal 2023.

Splunk represents an opportunity to own a cross-section of the most innovative technologies of the future -- big data analytics, machine learning, and artificial intelligence. That combination makes it a strong bet for the long term.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool owns shares of and recommends Facebook, Splunk, and Workiva. The Motley Fool has a disclosure policy.


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