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The trade war between the US and China escalated last week as both countries hiked their tariffs and President Trump ordered US companies to leave China. Shares of companies with high exposure to China, including Apple and US chipmakers, tumbled as those developments cast a dark cloud over the market.
Some investors are considering whether it’s time to dump higher-growth tech stocks and buy lower-risk income stocks, bonds, or gold.
However, tossing out babies with the bathwater could also cause investors to miss out on some big long-term gains. Today, I’ll highlight three growing companies that should remain immune to the US-China trade war: Square Inc (NYSE: SQ), Snap Inc (NYSE: SNAP), and Match Group Inc (NASDAQ: MTCH).
1. Square: The war on cash continues
Online payments company Square doesn’t do any business in China, and its expanding ecosystem – which include digital payment terminals, its Instant Deposit service for merchants, analytics services, Cash App for consumers, and Square Capital lending arm for small businesses – has helped widen its moat against rivals like PayPal.
Square’s adjusted revenue (which excludes transaction costs and bitcoin costs) rose 61% last year, and it expects that momentum to continue with 43% growth this year. Its adjusted EBITDA surged 85% in 2018, and it anticipates another 60% growth this year.
Square is gradually streamlining its business by dumping non-essential businesses like its food delivery platform Caviar, which it recently sold to DoorDash, and strengthening its higher-margin subscriptions and services – which posted 87% annual revenue growth last quarter and accounted for over a fifth of its top line.
The stock isn’t cheap at about 55 times forward earnings, but its growth rates easily justify that premium – so investors should take advantage and buy it if it’s unfairly crushed by trade war fears.
2. Snap: The preferred social network of US teens
Snap’s Snapchat has no exposure to China, and it’s consistently the top social network for US teens. The bears once claimed that Facebook‘s Instagram would crush Snapchat by cloning its features, but Snapchat has stemmed the loss of daily active users (DAUs) over the past three quarters.
Last quarter, its DAUs rose 7% sequentially and 8% annually to 203 million, with growth across all of its global regions (North America, Europe, and Rest of World) on both iOS and Android. Snap mainly attributed that growth to a redesign of its Android app, which boosted engagement and retention rates, and higher viewership of its Discover content and original short videos.
Snap’s average revenue per user (ARPU) also soared 37% annually to $1.91 as its automated ad platform attracted more buyers and users spent more time on the app – which is being expanded with new AR features and games.
Snap’s revenue rose 43% last year, and analysts expect 44% growth this year. Snap isn’t profitable yet, but its losses are narrowing — which indicates that the stock could still have room to run.
3. Match Group: The trade war won’t kill Tinder
Match Group, the parent company of Tinder and other popular dating apps, also lacks a presence in China. Last year, Match’s revenue rose 30% as its adjusted EBITDA grew 39%, and it expects its revenue to go up by the “high teens” this year as its adjusted EBITDA improves about 20%.
Match’s total subscriber base grew 18% annually to 9.1 million last quarter. Within that total, Tinder’s subscribers grew 41% annually to 5.2 million, and its top-tier Tinder Gold members now account for over 70% of the app’s user base. Match generates most of its revenue from subscriptions instead of ads, which further insulates it from economic slowdowns.
Match’s ecosystem of other apps is also expanding. Its second-largest app, OkCupid, grew its direct (non-advertising) revenue annually for six straight quarters in North America and is now one of India’s top dating apps.
Hinge, which it acquired earlier this year, more than tripled its global downloads annually. Match isn’t cheap at over 40 times forward earnings, but that premium is justified by its market-leading position in online dating and its insulation from the trade war.
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