Companies striving to prove enormous potential

Our stocks this week have had strong growth records but each faces the need to rebalance the revenue base towards new and more dynamic technologies, and achieve greater geographic diversity. In both cases the core profit generators are maturing, which means steady and reliable growth becomes less certain. For both businesses, however, there are huge opportunities on the horizon: in one case from nascent innovations in digital wallet technology and in the other from an intriguing intersection between cloud computing services and Artificial Intelligence (AI). Although cautious investors may prefer to wait and see if the new business lines can actually deliver what management hopes and promises.

Boku (BOKU) – Boku is a mobile payments processing business and the bulk of its profits still come from the Carrier Billing sector. This is where ad-hoc or non-recurring payments primarily in entertainment streaming services are charged through a mobile phone. Boku is a key provider to industry majors such as GooglePlay and Spotify, but these markets are maturing. Future growth, therefore, is sought from the more nascent and dynamic sectors of digital wallets and account-to-account (A2A), disintermediated payment systems. Early momentum achieved in these new areas must be sustained to see the business make good on apparently huge potential and for the shares, which are rated on a 27x PE, but have flatlined in 2023, to do likewise.

ServiceNow (US:NOW) – NOW is a major player in the cloud computing market, although the space remains dominated by the ‘Big 3’ (Amazon Web Services (AWS), Google Cloud & Microsoft Azure). It offers the less common Platform-as-a-service infrastructure – which looks set to benefit most from the arrival of Artificial Intelligence (AI) and machine learning. Growth in cloud computing has slowed fairly sharply, but NOW looks to be bucking the wider trend, although the forecast rate of profit growth (18 per cent) is below the average of the last five years (30 per cent). A strong business but potentially overbought, meaning that investors should wait for the shares to ease and look for something in the $600 to $625 range.