One of the early movers in the internet revolution, eBay Inc. (NASDAQ:EBAY) lives on today as an example of a company that survived the dot-com bubble and thrived. Investors who bought in 1998 and still hold the stock now have a 4,400% gain in their portfolio.
Big wins like that are hard to come by, but they do exist. And three of our investors think Etsy (NASDAQ:ETSY), Veeva Systems Inc. (NYSE:VEEV), and SunPower Corporation (NASDAQ:SPWR) hold eBay-like potential.
Following in eBay's footsteps
Tim Green (Etsy): In 1998 eBay produced just shy of $50 million of revenue, but it would grow to become the dominant online-auction website over the following two decades, with revenue of nearly $9 billion in 2016. The platform business model, where eBay takes a cut of all items sold, has been immensely profitable, producing operating margins in the ballpark of 25%.
Etsy, a marketplace for vintage and handmade products, has a similar business model. The company collects various fees when items are sold, including a $0.20 listing fee, a 3.5% transaction fee, and a 3% + $0.25 payment-processing fee. The company generated $365 million of revenue in 2016, derived from $2.84 billion of products sold through its platform.
Unlike eBay, which had the benefit of growing along with e-commerce in its early days, Etsy faces no shortage of competition, including eBay and Amazon (NASDAQ:AMZN), which sells similar products through "Handmade at Amazon." Etsy's focus on unique merchandise allows it to stand out from most online retailers, but rivals with deep pockets still pose a problem.
The odds of any company becoming the next eBay are slim, and Etsy is no exception. But this business model of enabling transactions and charging fees can be very profitable, given enough scale. Etsy will need to get bigger before it has any chance of throwing off tons of cash. The company may never be as big as eBay, but it can follow the same playbook on its path to profits.
Helping science help you
Cory Renauer (Veeva Systems Inc): Providing a platform that helped merchants and consumers overcome obstacles (in ways we never imagined possible) sent eBay's total revenue soaring 6,830% during its first decade as a publicly traded company. While you've probably never heard of the cloud-based solutions that Veeva Systems provides the global life-sciences industry, they are rapidly changing the way these businesses overcome an array of operating challenges and regulatory requirements.
Steering a new drug, diagnostic test, or medical device from the laboratory to your healthcare provider involves enough government roadblocks to make your head spin. Veeva's ability to help life-sciences businesses maintain compliance and manage customer relationships has made its products so popular that the company's revenue growth is reminiscent of eBay's early years. During the four-year stretch from the company's fiscal 2013 through fiscal 2017, subscription service revenue rose 493% to $434 million.
Veeva cut its teeth by adopting salesforce.com's customer relationship management tools for highly specialized life-sciences businesses, but investors will want to keep an eye on its proprietary-data management service, Veeva Vault. Before the days of electronic filing, drug and device applications sent to the U.S. Food and Drug Administration would fill small offices from floor to ceiling. Keeping all the necessary files at arm's reach is a daunting task for small and large companies, and it's no wonder subscription revenue from Vault has grown at a 123% annual rate over the past couple years.
Veeva's data management services are so popular, in fact, that businesses operating in highly regulated environments outside the life-sciences arena are signing up. It's early, but it looks like this company might have more avenues for growth than you can shake a hard drive at.
The industry with trillions in potential
Travis Hoium (SunPower): In 1998, eBay was in the early wave of internet companies that would come to define the next decade and lay the groundwork for the internet we know today. A similar revolution is now taking place in energy; solar energy is now the cheapest form of new electricity generation in most of the world. It's a multitrillion-dollar opportunity, and SunPower is at the forefront.
SunPower is the solar industry's efficiency leader, making solar panels that are over 22% efficient in converting the sun's energy to electricity, compared to 15% to 17% for conventional panels. That gives it an advantage in space-constrained environments, like the roof of a home or commercial building. But SunPower is also one of the biggest utility-scale solar companies in the world, with its Oasis and P-Series product lines. Oasis is a pre-engineered power-plant design; P-Series is a panel construction that uses conventional solar cells, but assembles them with a shingling method that makes the panel more efficient than traditional assembly.
If SunPower can maintain its technology lead in the solar industry, it will be well positioned to be a lasting player as the industry matures. And if it could take even 10% of a market worth trillions of dollars by 2035, this is a stock that could be worth multiples of its current $1.6 billion market cap.