Thirty-one years ago, on March 13, 1986, Microsoft (MSFT 0.78%) went public. While it's had its shares of ups and downs over the decades, the technology giant has still gone on to enjoy a total return to investors of more than 104,000%. Yes, you read that right.
Such growth is rare indeed, but finding the next Microsoft is still a worthwhile pursuit. So we asked three Motley Fool contributors to name a company they think is similarly positioned today. Read on to find out why they believe Tesla Motors (TSLA 3.71%), NetEase (NTES 1.32%), and Workday (WDAY 1.95%) are just where Microsoft was back in 1986.
Driving away from the competition
Rich Duprey (Tesla): Tesla has been a public company for seven years, putting it not quite at the same point in its growth stage as Microsoft in 1986, and it has already offered up returns of nearly 1,200% for investors, far outstripping the performance of the tech icon. But there's no reason it can't continue growing at such a torrid pace in the decades to come.
There are, of course, its electric cars, which are transforming the automotive industry. In its first-quarter earnings report, Tesla reported that deliveries surged 69% to 25,051 vehicles, more than doubling its revenue for the period while losses narrowed.
Perhaps more notable is what's about to come. The Model 3 is due in July, and that will be where the rubber of Tesla's car ambitions hits the road. These will be its first cars priced for the mass market, and that should help it quintuple annual production by next year to its planned 500,000 vehicles.
What could be of even greater importance down the road, though, even though it's currently just a small fraction of its portfolio, is its energy generation and storage division, which is looking to become profitable rather than just driving growth for its own sake. Tesla's earnings release noted, "Rather than prioritizing the growth of (megawatts) of solar deployed at any cost, we are selectively deploying projects that have higher margin and generate cash up front." So even though deployments have fallen year over year, they generated better results.
From its residential energy storage products such as the Powerwall 2, and inverters for the home or business and industrial uses, as well as solar roofing tiles that should begin production very soon, Tesla has the potential to ramp up phenomenal growth in what promises to be a burgeoning business.
Pursuing profits instead of simply growth in futuristic industries that exist and are needed today, Tesla can easily rival what Microsoft achieved, and perhaps sooner.
Cashing in on the gaming craze
Matt DiLallo (NetEase): Chinese online media, communications, and commerce company NetEase is a powerhouse in the gaming industry. The company makes a mint hosting online games that it created, as well as third-party products, serving as the gateway partner for gaming companies seeking to enter the lucrative Chinese market. The company earns attractive margins on that business, averaging more than 60% during the fourth quarter. Meanwhile, that business continues to grow at a brisk pace, up 60% during the fourth quarter.
But while NetEase has already done a fantastic job expanding its gaming business over the years, its best days still appear to lie ahead. First of all, only about half of China's population is even online at the moment, suggesting plenty of growth potential as more people in that country discover the internet and then NetEase's portals. Meanwhile, the company is looking to expand into countries other than China, which could increase the number of gamers on its network.
However, gaming is just part of the NetEase story, because the company is investing to diversify beyond just that industry. It already owns briskly growing email and e-commerce businesses that currently deliver a quarter of its revenue. Meanwhile, the company is investing in new technologies such as virtual reality that have the potential to add more sources of growth.
Because of the company's rapidly expanding core online gaming business and growing opportunity set, when I look at NetEase, I see a stock that feels like it that has the potential to deliver Microsoft-like market-smashing returns for decades to come.
An up-and-coming SaaS company
Daniel Miller (Workday): Way back in 1986, Microsoft was a company poised to make many of its early investors extraordinarily wealthy by 2000. Of course, it's incredibly difficult to uncover the next Microsoft, but Workday offers investors explosive growth and could be a long-term winner.
Workday is a software-as-a-service (SaaS) provider offering enterprise resource planning software for medium to large enterprises. Basically, Workday sells cloud-based applications for finance and human resources, and its products have been on fire, in a good way. Workday's fiscal 2017 revenues jumped 35% over the prior year and totaled $1.57 billion. Its subscription revenue was up 39% year over year, and the fourth quarter put the finishing touches on a strong year, as it was the best quarter in company history.
The advantage for Workday is that most companies have finance and human resources software that serve as expensive corporatewide solutions requiring updates. Workday is different in the sense that it sells its software on an as-needed basis, and that software is continually updated on the cloud. Now Workday enters into its potential growth-story phase and has introduced additional applications for hiring and recruiting, payroll processing, and even supply-chain planning and management software.
Workday is far from a guaranteed winner for investors, however, and the young company battles two huge competitors in Oracle and SAP. But Workday has won more than its fair share of customers, and if the company can string together a couple of big-time customer wins and develop its newer applications, it could be the beginning of a long-term success story for investors.