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2 Small Caps Blowing FANG Out Of The Water

2 Small Caps Blowing FANG Out Of The Water

FANG stocks have soared to new highs this year, but these 2 small caps are the ones to watch.

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The FANGs dominate headlines, but there are smaller names that investors should have on their radar right now.

Tech giants like Facebook (NASDAQ: FB) and Amazon (NASDAQ: AMZN) have surged to new highs, but smaller names like Twilio (NYSE: TWLO), and 3D Systems (NYSE: DDD) have exploded higher.

Twilio is up 171% year-to-date, and 3D Systems is up nearly 74%. There still may be gains to be had for these stocks but investors should be cautious as such a run-up in small cap tech stocks could indicate a speculative, frothy market.

Still, there’s reason to consider these stocks. Here’s what you need to know.



Twilio (NYSE: TWLO)

Twilio (NYSE: TWLO) is up 171% this year thanks largely to two rather exceptional quarterly reports.

The day after it announced its fourth quarter 2017 results in mid-February, the stock jumped 20% and then continued to climb until another jump in May after the digital communications company announced its first quarter earnings.

In its first quarter report, Twilio revealed its quarterly revenue had soared 48% year-over-year to $129 million with an adjusted net loss of $0.04 per share, which was far better than the market was anticipating.

While the company isn’t yet profitable, one good sign is that its revenue growth is far outpacing its actual customer growth, which has increased 33% year-over-year to just under 54,000, indicating that existing customers are realizing the utility of its core cloud communications products and buying into its other products.



And looking at the company’s net expansion rate for the first quarter, it’s clear that that is exactly what’s happening. The net expansion rate, which measures the revenue from existing customers – an important metric for companies that charge subscription or recurring fees as Twilio does, was 132% which means existing customers spent 32% more than they did in the same quarter last year.

The company boasts a strong customer list, which includes such names as Intuit, Nordstrom, Coca Cola, Airbnb, and Hulu. And ride sharing apps Uber and Lyft both use Twilio for real-time communications between drivers and customers.

Twilio’s stock trades below its IPO highs reached in 2016, and there’s likely to be another big move—for better or worse—when the stock reports its second quarter earnings in the coming weeks.

But what’s most promising about Twilio is that it is effectively disrupting the telecom industry with its cloud-based services, and this year’s gains may be just the beginning of a much bigger story. Stay tuned.



3D Systems (NYSE: DDD)

3D Systems (NYSE: DDD) is up nearly 74% this year as its financial performance has finally started to improve after a few tough years.

Since the 3D printing bubble burst three years ago, DDD has seen stagnating revenues and mounting financial losses. But so far this year, it has shown some signs of recovery.

And its no wonder why. While the 3D printing revolution hasn’t played out as bulls expected it to a few years ago, the industry is booming and advances in the technology have been astounding.



The technology now has become a powerful tool in several industries, and 3D Systems is one of the biggest names in the game.

While many small caps are looking like they might be in a bubble right now, 3D Systems has already seen its bubble burst and is now heading back up.

In 2012, DDD shot-up 270%, with another 161% in 2013. It reached a record high in late 2013 of $97, before crashing over the next two years. From its highs at the end of 2013 through 2015, the stock plummeted over 90%.

“It’s already had its massive breakdown,” said Matt Maley, equity strategist at Miller Tabak. “However, in the last year or so, the stock’s seen a nice rally. It’s made a nice higher low and now it’s breaking above its trend line going back to those 2014 highs.”

Source: TradingView.

This rally could be short-lived if the company isn’t able to maintain its improved revenues. But considering the massive growth in the 3D printing industry, I think this stock is one to watch for the long term.


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