KEY POINTS
- Block encompasses multiple ecosystems that continue to transform fintech.
- Roku helps to deliver and monetize streaming content.
- Shopify continues to widen its competitive moat in the e-commerce space.
These companies hold the potential to deliver life-changing returns over time.
Most growth-oriented investors dream of stocks that will "set them for life." These are stocks where they can invest a relatively modest amount and end up with eye-popping returns years later.
Nobody can guarantee that their growth stocki nvestment is the next Amazon or Netflix. However, after more closely examining the emerging industries of the future, Block, Roku, and Shopify are three stocks that hold such potential. Let's find out a bit more about each of these three stocks.
1. $Block(SQ)$
The company formerly known as Square is an enterprise that investors need to keep on their radar. Its Square ecosystem and Cash App continue to draw increased interest.
Additionally, investors may want to focus on international expansion. As of now, the Square ecosystem operates in only eight countries. Three of these countries are in the European Union, implying it could move into other countries that use the euro.But despite Block's potential, Jack Dorsey, who serves as "Block Head," has emphasized Bitcoin as an internet currency "native to itself," putting off investors who still believe in sovereign currencies. Its ownership position in Bitcoin has also made it more difficult to value the company. Although Bitcoin makes up the largest share of revenue, Bitcoin costs negate nearly all of that revenue. This means that investors should measure gross profit rather than revenue to negate the effects of Bitcoin costs.
Moreover, this has tied much of Block's stock performance to Bitcoin, a cryptocurrency that has fallen by more than 70% from its 52-week high. Block stock has dropped more, falling nearly 80% from its 12-month peak.
This decline did not stop its year-over-year gross profit from rising 34% in the first quarter. Nonetheless, $1.3 billion in gross profit did not stop net income from turning negative. It fell to $204 million in Q1, down from a $39 million profit in the year-ago quarter.
Still, its price-to-sales (P/S) ratio of two is near a record low. Furthermore, the focus on blockchain and cryptocurrency could make Block a leader in these emerging spaces, even if Dorsey's more controversial views do not come to pass. As the use of the Square ecosystem and Cash App increase, Block should grow even if Bitcoin struggles in the near term.
2. $Roku Inc(ROKU)$
Viewers have increasingly turned away from traditional television in favor of programming they can watch on-demand. Amid this shift to streaming, no company has done more to organize streaming into a viable model than Roku.
The key to Roku's growth is its advertising platform. It brings viewers, content providers, and sponsors together into an ecosystem. These advertisers can not only target ads to desired consumers but also capitalize on Roku's data analytics capabilities to improve this process. According to eMarketer, U.S. TV ad spending has peaked, hinting at a shift to streaming platforms. Roku predicts streaming will eventually claim 100% of TV advertising budgets.Admittedly, its stock has dropped by more than 80% as supply chain issues and the emergence of viewers from the lockdowns hampered growth prospects. Indeed, its growth continues, as its Q1 revenue surged 28% year over year to $734 million, including 39% revenue growth for the platform.
However, platform revenue fell amid a supply chain crunch. Additionally, increases in expenses led to a $26 million net loss, down from a $76 million profit in the year-ago quarter.
Still, the lower stock price has taken its P/S ratio to just above four, near multi-year lows. With that lower valuation and the platform's enduring growth, investors might see this as atime to buy more Roku stock as the company helps perpetuate the transition to streaming.
3. $Shopify(SHOP)$
E-commerce encompasses more than just Amazon. Millions of businesses sell goods independent of the online giant, and Shopify appears to have best placed itself to take advantage of this trend.
Indeed, numerous other software platforms provide some of these same services. However, Shopify provides an ecosystem that includes a sales platform, an independent payments system, and inventory management tools that manage both online and offline sales.Moreover, if clients need help with storing, shipping, and packaging inventory, the Shopify Fulfillment Network (SFN) can manage those needs. The SFN also shows that the company will transcend its identity as a software provider to serve its customers, a step most competitors cannot or will not take.
Amid the sell-off in tech stocks, Shopify sells at an 80% discount to its 52-week high. Its $1.2 billion in revenue still represented a 22% increase from year-ago levels. Nonetheless, faster increases in the cost of revenue and operating expenses reduced adjusted net income to $25 million, down from $254 million in Q1 2021.
However, its P/S ratio of nine is a multi-year low. The continuing growth of e-commerce and Shopify's vast ecosystem should make it the platform of choice for sellers who want to avoid Amazon.
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