There are few companies that do something unique, embedding themselves in the history books for all of time. As you'll see below, this can be a positive or a negative. We asked three of our contributors to each discuss a history-making stock. Here's what they had to say about Visa (V 0.49%), Snap Inc. (SNAP 4.71%), and Gilead Sciences (GILD -0.56%).
Swiping its way through history
Jordan Wathen (Visa): Payments-network Visa is the most remarkable company I've ever had the pleasure of following. Very few companies can grow at a double-digit clip for decades, but Visa has done just that, and it should continue to do so for a very long time to come.
Visa makes its money connecting card-issuing banks with merchants. In effect, it operates the toll roads over which trillions of dollars of annual payment volume travel. It played a role in $1.8 trillion of payment volume in the first calendar quarter of 2017, helped by its recent acquisition of Visa Europe, and has 58% market share of the entire industry, according to Nilson data.
Image source: Visa.
A Bernstein estimate suggests that there's as much as $30 trillion of annual payment volume that the card networks could capture, excluding China, where domestic networks have a regulatory advantage. That gives both Visa and Mastercard, which have the lion's share of the market, a huge runway to grow, simply by capturing the ongoing shift from cash and checks to cards.
Shares are rarely cheap, frequently trading at about 25 times earnings guidance. Given Visa's long runway for growth and its history of blowing out analysts' earnings expectations, even "high" prices for the stock have proven to be very cheap over time.
A camera company
Tim Green (Snap Inc.): Snap Inc., the company behind the popular Snapchat app, went public in March. But even though the company generated just $404 million of revenue in 2016 and posted a net loss of $514 million, the market saw fit to value it in the ballpark of $25 billion. Even a disastrous first-quarter report, where the company missed estimates and reported sluggish user growth, caused only a temporary dip.
While Snap's ludicrous valuation seems like one for the history books, that's not the most notable thing about the stock. In an unprecedented move, the company offered only non-voting shares in its initial public offering. Snap stated in its S-1 filing that, "...to our knowledge, no other company has completed an initial public offering of non-voting stock on a U.S. stock exchange."
Investors won't care that the two founders of the company, CEO Evan Spiegel and CTO Robert Murphy, have essentially unchecked control over Snap if the stock performs well. But if the stock tanks, which is a real possibility given the valuation, investors will lament their decisions to ignore this history-making red flag.
Cures aren't common
Keith Speights (Gilead Sciences): Throughout the course of history, there have been plenty of drugs developed to treat diseases. However, there haven't been nearly as many drugs that actually cured a disease. That's especially the case for a chronic disease like hepatitis C, which affects millions of people across the world. But Gilead Sciences changed history by introducing a cure for hepatitis C.
In December 2013, the U.S. Food and Drug Administration (FDA) approved Sovaldi, and Gilead quickly launched the drug. To say that Sovaldi was successful would be a huge understatement. The drug enjoyed the fastest launch ever. In its first quarter, Sovaldi became a megablockbuster, generating sales of $2.27 billion.
Gilead followed up that success with Harvoni, which launched in the fourth quarter of 2014. Harvoni is a combination of Sovaldi and another Gilead drug, ledipasvir. In 2015, sales for Harvoni reached a whopping $13.9 billion, with Sovaldi kicking in another $5.3 billion.
There's a big problem for a biotech or pharmaceutical company that sells products that cure a disease, though. After a period of time, there aren't as many patients to use the products. That's exactly what happened with Gilead Sciences. The company became a victim of its own success. Sales for its hepatitis C drugs are falling, weighing down Gilead's overall revenue and earnings.
Gilead's best hope now for returning to growth is to make one or more acquisitions. The company has indicated that's exactly what it plans to do. The good news is that Gilead has a pretty good track record of making deals. In 2011, the biotech spent $11 billion to buy Pharmasset -- picking up a drug later to be called Sovaldi.
