Choosing great companies to own for the long-term involves looking at the trends that they can capitalize on, as well as the growth catalysts that fuel rises in revenue and market share. The pandemic has helped to separate the mediocre companies from those that not only have the financial muscle to survive but will also thrive at the expense of their weaker counterparts.
As the financial and economic landscape alters, one trend seems clear. More and more people are hopping online to transact, set up businesses and work and communicate. What used to be a gradual shift has now been accelerated by this crisis, and it's unlikely that the world will go back to the way it was. Businesses that can ride on this wave are destined to do well, and investors in these businesses can also benefit alongside.
Here are three companies that have a great chance of doubling your money.
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Shopify
Shopify (SHOP 0.80%) has been one of the beneficiaries of the work-from-home trend. The company, which provides essential tools for entrepreneurs to start online businesses, saw its business grow strongly in the last 18 months due to two main reasons. Employees who were laid off their jobs found solace in starting their businesses, while workers who were told to telecommute decided to diversify their sources of revenue by starting an online shop.
These two trends have come together to power Shopify's business to greater heights. Total revenue for its fiscal 2021 second quarter shot up 57% year over year to $1.1 billion, with subscription solutions revenue jumping by 70% year over year as more merchants came on board its platform. Gross merchandise value increased by 40% year over year to $42.2 billion as more people transacted across Shopify's platform. After adjusting for unrealized gains on equity investments, the company posted a net income of around $101 million, close to three times more than the $36 million chalked up in the prior year.
Shopify continues to enhance its platform to attract more merchants and customers, thereby setting up a virtuous cycle. It introduced features that help merchants manage their inventory and added analytics and marketing tools to help them analyse their sales. The company has also partnered with a reputable player in the buy now, pay later industry to boost its sales, and recently rolled out its new Shop Pay instalments to all merchants in the US to provide buyers with affordability and flexibility that comes with this additional payment option.
Alphabet
Alphabet (GOOGL -0.79%), the owner of Google, one of the most widely-used search engines, is reporting broad-based growth across all of its products. The surge in people going online has given the technology giant's numbers a fillip, and the momentum looks set to continue even after the pandemic has eased.
For its latest quarter ended June 30, Alphabet reported a 62% year over year jump in revenue to $61.9 billion. Operating margin expanded by 14 percentage points to 31%, while net income soared by 166% year over year to $18.5 billion. Google search saw revenue rise by 68.1% year over year while YouTube advertising revenue rose by 83.7% year over year. Cloud services under Google Cloud saw a 54% year over year jump in revenue as more businesses went online.
CEO Sundar Pichai also talked about several initiatives to improve Alphabet's offerings. One of these is a new artificial intelligence system called Lambda that can help make information more accessible, while another is a new privacy dashboard for Android that can keep customers' data secure. These improvements should endear more people to Alphabet's suite of services and enable the company to post steady growth.
Okta
As organisations increase the number of cloud services they subscribe to, login credentials, passwords and privileges naturally become increasingly complex. Okta (OKTA 0.95%) helps to solve these pain points by providing a platform for their clients' stakeholders to securely sign on to websites, mobile apps and cloud applications. With the pandemic pushing more businesses to go online, Okta's services have seen stronger demand as the company offers a secure and convenient method for managing user access and privileges.
For the quarter ended Apr 30, Okta reported that revenue grew 37% year over year while remaining performance obligations surged by 52% year over year. Operating cash flow also hit a record high of $56.1 million for the quarter, as did free cash flow at $52.8 million. Total revenue has seen a 45% compound annual growth rate since its fiscal year 2019, and the company's dollar-based net retention rate stood at 120%. These numbers attest to the growing demand for Okta's services and the stickiness of its clients as they increasingly rely on the identity management software company to smoothen their information technology workflows.
Having just completed its acquisition of Auth0, an identity platform for application teams, back in May, Okto is now one of the leading identity cloud companies in the industry. The company believes that it has a total addressable market of $80 billion with many opportunities for growing its top line. Some methods include landing and expanding use cases in large organizations, expanding internationally and partnering to increase its customer reach.
Tailwinds that persist
All three of the businesses above enjoy strong tailwinds that will not die down anytime soon. Each company has also invested money to improve its functionality and platform to provide its customers with better service and make them stickier. They should enjoy steady growth in revenue and market share and their stock prices should also rise in tandem.
