What a difference a year can make. In 2022, shares of Sea Limited (SE 1.38%) dropped 77%. This was followed by an additional 22% decline in 2023. But in 2024, Sea Limited stock roaring back with a 162% gain, making it one of the best performers on the stock market.
With a market capitalization of $60 billion, Sea is a large-cap stock. And such a steep move for a company of this size is surprising. But Sea had plenty of company among large-cap stocks. Joining it on its triple-digit climb in 2024 were Axon Enterprise (AXON 0.77%) and Spotify Technologies (SPOT 1.94%), which gained 130% and 138%, respectively.
Here's why shares of Sea, Axon, and Spotify soared last year, plus a look at which of them has the most upside potential in 2025.
1. Sea Limited
To understand why Sea stock is surging, you need look no further than its revenue growth rate. In 2023, the company's revenue rose by a ho-hum 4.9%. But revenue has surged by a far more robust 25.6% year over year through the first nine months of 2024. When a company's top-line growth accelerates like this, it's normal for the stock price to follow.
Sea has a video game unit, a financial services business, and an e-commerce platform. The e-commerce space in Asia (where the company is based) is particularly competitive but also full of potential. Sensing an opportunity, management spent heavily on sales and marketing for e-commerce in late 2023 -- its spending more than doubled to nearly $900 million in the fourth quarter alone. This led to a quarterly net loss, but it seems to have paid off with growth for the segment.
In Q3 2024, Sea's e-commerce hit a year-to-date high of 43%. What's fascinating about this growth is that management has already pulled back on its e-commerce sales and marketing spending -- it was down 11% year over year in Q3. In short, growth is still surging in response to its prior investments, and the company is now enjoying greater profitability.
2. Axon Enterprise
Axon makes Tasers and body cameras, in addition to providing cloud storage and other digital tools for law enforcement agencies. But in 2024, the business increasingly branched out into new products and use cases.
For example, Axon's nascent drone business helped first responders in the aftermath of Hurricane Helene, and cash distribution company Loomis just signed a deal with Axon for its body cameras and cloud storage.
As the business expands, Axon's growth is coming in hot. For full-year 2024, it expects to report revenue growth of approximately 32% to $2.07 billion, following two consecutive years of greater-than-30% growth. Such rapid expansion at this scale is impressive.
That said, compared to its full market opportunity, Axon is still a relatively small business, giving shareholders plenty of reason for optimism regarding its long-term potential.
3. Spotify
In 2024, Spotify stock officially erased its 75% plunge from 2021 and 2022 and set new all-time highs -- and there are multiple positive drivers for the business. They start with a healthy customer base. Most of the company's revenue comes from its premium subscribers. As of the third quarter, its premium subscriber base was up 12% year over year to 252 million users -- and that growth came after it increased the prices of its subscription plans.
The opportunity for operating leverage for a digital content platform such as Spotify is profound. As more people subscribe and pay higher prices, its profit margins are dramatically improving. Spotify's gross margin and operating margin hit all-time highs in Q3 as you can see below.
Data by YCharts.
In short, Spotify's business is booming, putting the company in perhaps its best financial position ever. It's no surprise that the stock is hitting new highs.
Which has the most upside for 2025?
To be clear, Axon is a great company and should continue to grow for a long time, but tapping into that growth comes at a hefty price for new investors today. Trading at 24 times sales, Axon stock is expensive on an absolute basis, but even on a relative basis, its valuation is twice as high as its three-year average.
Data by YCharts.
Rapid valuation spikes such as this can often be followed by equally swift pullbacks. For this reason, Axon stock isn't my top pick for 2025, even though it remains a great company.
Spotify's financials look great right now, but the company has raised prices two years in a row and recently conducted layoffs. These moves improved the profitability of its operations, but they can't be repeated year after year. Therefore, I wouldn't be surprised if its growth cools in 2025 and profit improvements plateau. That's why Spotify isn't my top pick for 2025 either.
Of these three stocks, Sea is my top pick for 2025. Not only is its e-commerce business surging, but its other two business segments are experiencing accelerated growth. In Q3, financial services revenue was up 38% year over year, and at just $616 million for the quarter, the unit still has lots of room to grow. Meanwhile, bookings for its video game business also jumped 24% in Q3, pointing to future growth as bookings convert to revenue.
Sea Limited's business is booming as much as Axon and Spotify's are. However, its stock trades at just 4 times sales, making it the cheapest stock of the three, which is why I expect it the have the most upside potential among them in 2025.
