Tech stocks have been on fire over the last 12 months. With the pandemic causing disruption worldwide, businesses turn to technology innovations to cope.
The sudden surge in demand has caused many technology companies’ share prices to skyrocket. By what will happen after the pandemic ends? Some might fall back.
But I’ve found two tech stocks I believe could prosper longer term and I’ve bought shares in both.
The tech stock driving e-commerce sales
E-commerce has flourished under lockdown conditions. Since all non-essential shops are closed, consumers are turning to online stores for their retail therapy. So I wasn’t surprised to find out that since early 2020, over 85,000 new online businesses were established in the UK.
But with so many online stores to choose from, the need for marketing has increased drastically. And that’s where dotDigital (LSE:DOTD) comes in.
The tech stock provides software-as-a-service (SaaS) to its clients via its Engagement Cloud platform. The platform automates the marketing process for businesses to increase traffic, engagement, and customer retention. Put simply, it uses email, text messages, and social media posts specifically tailored to each customer to generate highly effective targeted adverts.
However, as this process requires customer data analysis, it opens up the firm to some regulatory risk. Namely, the General Data Protection Regulation Act commonly referred to as GDPR.
The legislation helps protect personal data by limiting how it can be collected and used. But it also creates a speed bump for targeted advertising platforms like Engagement Cloud.
dotDigtal appears to have adapted quite well to the new regulatory environment in my eyes. However, if further restrictions are introduced, it could create new challenges that will impact the business. What’s more, if a security breach occurs and personal data gets exposed, the tech stock is likely to suffer enormous reputational damage.
A Remote learning business solution
Covid-19 prevents in-person training from taking place. So, businesses have to turn to remote learning solutions, like those provided by Learning Technologies Group (LSE:LTG).
The tech stock has a plethora of software and service offerings that can be easily integrated with its clients’ existing training pipelines. This digital approach allows employees to receive and complete vital training from the comfort of their own homes. And since they can go through the learning material at their own pace, it makes the entire process far more enjoyable.
Face-to-face training will undoubtedly return after the pandemic ends. But the services provided by this tech stock are a cheaper alternative that I expect some business will continue to use. Even before Covid-19 hit, the company achieved average annual revenue growth of over 60%.
However, despite this impressive growth, the firm is certainly not without risk. The end of the pandemic could mean slowing growth. And the remote learning market is highly competitive as the barriers to entry are quite low. The stock has a size advantage and established reputation. But any gaps in its offerings could quickly be taken advantage of by a rival firm.
The bottom line
I think these businesses should be just as essential in 10 years as they are today. Perhaps even more so.
Given their enormous growth potential, I decided the rewards outweigh the risks. I own shares in both tech stocks, and even though their valuations today are a bit high, I’d still buy more!
