Facebook (FB +0.71%) is more than just a sprawling social network with billions of daily users. In recent years, the company has figured out how to monetize that online presence. Sales and profits are skyrocketing, and share prices quickly followed suit. Early Facebook investors have seen their positions grow more than fivefold in just five years.
How do you match that success story, which has landed Facebook among the five largest companies by market cap? We asked three of our top contributors that very question, and here's what they came up with.
Read on to see how Netflix (NFLX +2.60%), Baidu (BIDU 3.89%), and Shopify (SHOP 2.64%) could match or even beat Facebook's massive returns in years to come.
Facebook CEO Mark Zuckerberg rings the Nasdaq opening bell. Image source: Facebook.
Look to the East for growth
Dan Caplinger (Baidu): The U.S. might have been the birthplace of internet and social media stocks, but the Chinese market has a lot more growth potential by virtue of its sheer mass of population. Baidu has long been a giant in the internet space in China because of its highly popular search engine, and the company has worked hard to expand its scope to capture more of the online and mobile market.
Baidu knows that it can't afford to waste any time, and that's why it's spending a lot of money to try to find a wider variety of growth prospects for the future. In particular, Baidu established a $3 billion investment fund to invest in emerging technology companies that are late in the venture-capital stage.
With projects including artificial intelligence and autonomous driving, Baidu is following in the footsteps of some U.S. technology giants. At the same time, Baidu also wants to be the gateway for U.S. content to enter China, and a recent deal with Netflix should help to bolster viewership of Baidu's iQiyi streaming video service.
If Baidu can keep expanding and remain a favorite among Chinese users of the internet and mobile devices, then it has the potential to rival and surpass Facebook's growth over time.
The company that could save small retail
Jason Hall (Shopify): Amazon.com has been the clear winner in online shopping, and traditional retail continues to lose relevance. But that doesn't mean the days of the hometown storefront are over. To the contrary, savvy small and medium-sized sellers are adapting to the new retail reality, with Shopify playing a huge role in helping them take advantage of changing consumer preferences to not only survive, but to thrive in the new retail landscape.
Shopify provides traditional sellers with the tools to be great at e-commerce, including e-commerce storefronts, managing the back end, shipping, inventories, and other operational things. But most importantly, it helps sellers make sure they are where customers can find them, since its platform is a preferred partner with both Facebook and Amazon.
Here's the big one: The data Shopify provides its users not only helps them understand their sales, but helps them sell more, and more profitably, across all their platforms. This makes it incredibly sticky, since it's both hard to replicate and allows sellers to focus on whatever their product or service is while Shopify acts as the trusted e-commerce partner.
And so far, Shopify is going gangbusters as merchants flock (and stay with) to its offerings. Since going public in 2015, Shopify's revenues, gross profit, and cash from operations have skyrocketed:
SHOP Revenue (TTM) data by YCharts
And with a market capitalization of less than $10 billion, there's massive room to grow. That makes Facebook-like returns a real possibility for Shopify shareholders.
Netflix: Ripping a page from Facebook's growth playbook
Anders Bylund (Netflix): Facebook's market cap has grown more than sevenfold over the last five years, creating an industry giant with an imposing market presence. This rainmaker is exploiting economies of scale on a global level to drive its sales and cash flows through the ceiling on a regular basis.
FB Revenue (TTM) data by YCharts
I believe that Netflix is poised for similar development in the next five to 10 years. That Facebook chart looks like a blueprint for Netflix's future.
The $70 billion market cap and $9.5 billion in annual sales you see today are just an early benchmark in the development of another worldwide industry giant -- this time in the entertainment sector.
The story so far has seen Netflix emerge from a capital-intensive and geographically limited DVD mailing service to a truly global digital media network. Running into increasing content licensing costs as TV and movie studios started to realize how effective the Netflix model can be, the company is moving on to become an award-winning content-production giant itself.
At the moment, Netflix is taking a break from the intense service start-up costs and bootstrap marketing efforts of that near-universal service roll-out, instead focusing on more and better original content and collecting some additional profit for a while. We are witnessing a major content studio as it takes its first tentative steps, and the business Netflix is building today will provide a huge launching pad for whatever the company is doing next.
That's a lot like Facebook's evolution from a simplistic social network to the efficient cash machine you see today. Making big profits was not what Facebook was about in the late 2000s, but it came easy when the social platform had matured enough. Netflix is just getting started on the whole "mature global business" idea, and the biggest gains should follow later.
