2020 was a great year for U.S. tech companies, many of which were well-insulated from the pandemic. But it was also a solid year for many overseas tech companies, which benefited from the same stay-at-home and cloud tailwinds as their domestic counterparts. Let's take a closer look at three of those companies, how they fared this year, and why they remain compelling investments for 2021 and beyond.
1. Shopify
Shopify (SHOP -5.62%) became Canada's most valuable company earlier this year. The e-commerce services company, which helps merchants set up their own online shops and services, saw its sales soar as brick-and-mortar stores closed down during the pandemic.
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Unlike Amazon and eBay, which lock merchants into their ecosystems, Shopify encourages merchants to manage their own online presence with tools for payments, logistics, marketing campaigns, and more. That paradigm shift accelerated throughout the pandemic, but the trend should continue long after the crisis ends.
Last year, Shopify's revenue rose 47% as its GMV (gross merchandise volume), or the value of all goods sold by its merchants, grew 49%. Its adjusted EPS fell 30%, mainly due to its integration of 6 River Systems (which it bought last October) into its fulfillment network.
But this year, analysts expect Shopify's revenue to rise 81% and for its earnings to surge twelve-fold as the pandemic accelerates the digitization of smaller merchants and brick-and-mortar businesses. Next year, they expect its revenue to rise 33%, but for its earnings to dip 2% against tough year-over-year comparisons.
Shopify's stock might look expensive right now at 34 times next year's sales and 278 times forward earnings, but that premium could be justified as it continues to expand its ecosystem and its customer base of over a million merchants worldwide.
2. Tencent
Tencent (TCEHY -0.15%) is one of China's largest tech companies. It's the world's largest video game publisher; it owns WeChat, China's top mobile messaging platform; and its integrated WeChat Pay platform splits China's digital payments market with Ant Group's Alipay.
Tencent also owns one of China's largest cloud platforms, one of its top digital advertising platforms, and the market-leading Tencent Video and Tencent Music streaming media services. That sprawling ecosystem gives Tencent a very wide moat, and makes it a well-diversified play on China's booming tech sector.
Tencent's revenue and adjusted earnings rose 21% and 22%, respectively, last year. But in the first nine months of 2020, its revenue rose 29% year-over-year as its adjusted earnings grew 38%.
Its four core businesses -- online gaming, advertising, social networking (value-added services), and fintech and business services -- all generated robust double-digit revenue growth throughout the crisis.
Stay-at-home measures compelled people to play more games and spend more time within WeChat's walled garden of Mini Programs, while companies that benefited from the pandemic -- including e-commerce, online education, and gaming companies -- bought more ads on WeChat. Its cloud and payment services also generated strong growth as companies conducted more businesses online.
Analysts expect Tencent's revenue and earnings to rise 36% and 47%, respectively, this year. Next year, they expect its revenue and earnings to grow another 24% and 18%, respectively, even as the pandemic-related tailwinds fade. Tencent's stock trades at 32 times forward earnings -- which is a surprisingly reasonable valuation for a company with so many irons in the fire.
3. Ericsson
Swedish telecommunications giant Ericsson (ERIC 0.95%) might initially seem like a slow-growth stock, but it remains well-poised to profit from the expansion of the 5G market in 2021 and beyond.
Ericsson controlled 14% of the world's telecom equipment market last year, according to Dell'Oro Group. That placed it in third place behind Huawei's 27% share and Nokia's (NOK) 16% share.
Image source: Getty Images.
But unlike Huawei, Ericsson doesn't face any trade sanctions or blacklists. Unlike Nokia, which lost several large contracts in China amid the trade war, Ericsson retained its major 5G contracts in China. Ericsson also isn't struggling with a messy leadership transition like Nokia, which lost its longtime CEO earlier this year after several 5G setbacks.
As of this writing, Ericsson has secured 117 commercial 5G agreements worldwide. Analysts expect Ericsson's ongoing growth in the 5G market -- along with its market share gains against Huawei and stable sales of its other networking devices and services -- to boost its revenue and earnings by 8% and 26%, respectively, this year.
Next year, analysts expect Ericsson's revenue and earnings to rise 7% and 24%, respectively. Those are high growth rates for a stock that trades at just 17 times forward earnings, and the company also pays a semi-annual dividend that's hovered near 1% in recent years. Ericsson's stock has already rallied about 40% this year, but its solid fundamentals and low valuation still make it a compelling buy.
