Of all the stocks our market has to offer, few have delivered long-term gains as staggering as eBay (EBAY -1.27%). Shareholders who bought and held a piece of the online marketplace shortly after its 1998 IPO have seen the value of their investment soar more than 4,100% -- and that's not to mention eBay's spinoff of PayPal Holdings in 2015, through which stockholders received one share of PayPal for each share of eBay they owned.
That raises the question: Are there any stocks today that look like eBay did in 1998?
A well-educated investment decision
Steve Symington (2U): Much in the same way that eBay was a pioneer in the early days of eCommerce, 2U has carved out a lucrative niche as the leading online platform for higher education. Its partnerships currently cover 48 announced domestic graduate programs with 22 leading universities -- a list that grew last quarter with new and expanded programs for Yale, Harvard, UC Berkeley, and Dayton, to name a few.
2U also only recently closed on its $103 million acquisition of GetSmarter, a leader in premium online short courses. The move not only offers incremental growth for 2U from the world of non-degree alternatives but also accelerates its international momentum through GetSmarter's university partners such as MIT, Cambridge, and Oxford.
2U is translating that traction to stellar financial growth so far. Revenue last quarter climbed more than 35% year over year, to $70.3 million, and 2U increased its 2018 domestic graduate program (DGP) launch goal to 14 programs, up from an initial goal of 12, because of university demand. Looking ahead to 2019, 2U plans to further accelerate that schedule to 16 DGPs along with the launch of its first international graduate program.
Note, however, that 2U is not profitable based on generally accepted accounting principles. Last quarter's sales resulted in a GAAP net loss of $14.7 million, or $0.30 per share. But that's primarily because the company absorbs the majority of the cost structure of each program at launch. In turn, this typically means it collects between 60% and 70% of each program's tuition revenue -- a fantastic arrangement for long-term investors willing to watch that revenue base increase.
As its stable of programs continues to grow, profitability will follow. So even with 2U stock having more than doubled so far in 2017, I think it will continue beating the market for the foreseeable future.
The pioneer of online food delivery
Leo Sun (Grubhub): Much of eBay's early success is attributed to its first-mover advantage in the online auction space. With little direct competition in the late 1990s, eBay grew like a weed.
I see similar characteristics in Grubhub, the biggest food pick-up and delivery service provider in the country. Grubhub's ecosystem -- which includes its namesake app, Seamless, Restaurants on the Run, DiningIn, Delivered Dish, and Eat24 -- reaches 75,000 restaurants in over 1,300 U.S. cities and London.
Earlier this year, Cowen & Company estimated that GrubHub controlled about 50% of the online food delivery market in the United States. That puts it well ahead of UberEats and Amazon.com (AMZN 2.08%), which respectively held 20% and 11% shares. That lead indicates that even online behemoths like Amazon probably can't render it obsolete.
That's why Grubhub's revenue rose 32% annually to $163.1 million last quarter. Its active diners rose 28% annually to 9.81 million, daily average grubs (meals) rose 14%, and gross food sales jumped 18% to $867 million. On the bottom line, its non-GAAP net income improved 23% annually to $24.5 million. Analysts expect its revenue and non-GAAP earnings to respectively rise 37% and 28% this year.
Grubhub's Achilles' heel is its valuation. After rallying more than 70% this year, the stock trades at 95 times trailing earnings, with a forward P/E of 46. Therefore, Grubhub has eBay-like growth potential, but its valuations are uncomfortably high -- just as eBay's were in the late 1990s.
A not-so-hot name in solar
John Bromels (SolarEdge Technologies): eBay's business model wasn't based on selling any particular product, but by giving others a platform on which to sell their own merchandise on the internet -- a white-hot, rapidly expanding sector. In 1998, this model led its stock to take off and never look back. My pick, SolarEdge, is following eBay's model in today's white-hot, rapidly expanding sector: solar power.
Most of the hype in the solar industry surrounds the solar panels themselves -- industry insiders refer to them as "modules" -- which are the arrays of solar cells that absorb the sun's photons and convert them into electrical current. Many solar companies are duking it out to offer the most efficient panels possible for the cheapest prices -- almost like an online auction participant trying to get the best price.
SolarEdge isn't one of those companies. Instead, it manufactures the electrical components of a solar energy system, like the inverters, which transform direct current from the panels to alternating current, and optimizers, which maximize the system's energy output. They're vital components and, as SolarEdge's recent performance has shown, incredibly lucrative. The company's stock has more than tripled in 2017, from under $13 a share in January to more than $39 today, mirroring eBay's 1998 rise.
But as we all know, eBay shares continued to go up, and up, and up, even after 1998. With an increasing share of a fast-growing market, SolarEdge could do the same.
The bottom line
We can't guarantee that 2U, Grubhub, or SolarEdge Technologies will follow in eBay's footsteps as a truly amazing investment. But we like their chances, given their industry leadership, early stage market opportunities, and remarkable long-term growth potential.