When it comes to generating life-changing wealth, few companies have done so as effectively as Apple in recent years. To be sure, those who bought and held Apple stock just 10 years ago have watched the value of their investment soar nearly 1,000%, including dividends.
Of course, it's easy to see now how Apple accomplished the feat. The tech giant had only just launched its first iPhone in mid-2007, effectively changing the way the world would think about smartphones and mobile computing in the coming years.
That raises the question: Are there any companies on the market today that look like Apple did in 2008? We asked three top Motley Fool investors to weigh in. Read on to learn why they think Pandora Media (NYSE:P), Cannabis Wheaton Income Corp. (OTC:CBWTF), and Atlassian Corporation (NASDAQ:TEAM) fit the bill.
The sweet sounds of long-term gains
Steve Symington (Pandora Media): When Pandora announced stronger-than-expected quarterly results a few weeks ago, at first the market rejoiced by driving shares of the streaming music specialist up more than 10% in after-hours trading. But the happy music didn't last; the stock instead dropped nearly 8% the following day as the market digested Pandora's underwhelming revenue guidance for the current quarter.
However, I think the fall presents an opportunity for long-term investors. Much in the same way that Apple was fostering its relatively new iPhone line -- a product that would go on to be more successful than virtually anyone on Wall Street had predicted -- Pandora is only starting to see the first fruits of its new subscription-based music services.
To be sure, Pandora's $9.99-per-month on-demand streaming service, Pandora Premium, was launched almost exactly a year ago. So it should come as no surprise that subscription revenue last quarter soared 63% year over year to $97.7 million. But that's less than a quarter of Pandora's total sales, leaving a long runway for incremental sales growth. To that end, Pandora's subscriber growth is accelerating, with Plus and Premium subscribers increasing 25% year over year last quarter to 5.48 million.
That's also not to mention other opportunities that Pandora's new CEO, Roger Lynch, formerly the head of Sling TV, sees for the company to drive growth. More specifically, Lynch believes the company can expand into new content such as podcasts, spoken word, and traditional radio; capitalize on expanded distribution partnerships such as connected home and automotive; use more rewards-based ads to drive free users to upgrade; improve its advertising technology; and more aggressively leverage partner marketing to lower subscriber acquisition costs.
"Many of our growth initiatives are still in the early stages," Lynch teased during this quarter's conference call, "and their impact will build over the course of 2018."
For investors willing to bet that's he's correct in that prediction, I think Pandora stock could be poised to deliver outsize gains for years to come.
A cannabis industry disruptor? You bet!
Sean Williams (Cannabis Wheaton Income Corp.): Innovation has been Apple's driving force over the past decade, and it's the primary reason behind the company's 800% increase in share price, inclusive of dividends, since 2008 began. While it's difficult to say that any company can follow in its footsteps, I'd toss Cannabis Wheaton Income Corp. into the ring as one possibility.
As the name suggests, Cannabis Wheaton is involved in the marijuana industry, which most folks wouldn't exactly describe as an "innovative" industry. Sure, it's been constrained by regulations in most countries, but cannabis isn't often viewed as game-changing. However, Cannabis Wheaton does bring something unique to the table that the industry hasn't yet seen: a pot-based royalty model.
Growers, especially in Canada, which is considering legislation that would legalize recreational weed by this coming summer, are aggressively looking to expand their production capacity. Unfortunately, few if any growers are generating much in the way of operating cash flow. This leaves Canadian growers critically underfunded at a time when demand is set to explode. Furthermore, most financial institutions won't lend to cannabis businesses for fear of violating federal law.
To obtain his much-needed capital, they turn to a company like Cannabis Wheaton. In return for up-front cash that growers can use to expand their production capacity, Cannabis Wheaton receives a percentage of crop yield at a well-below market rate. The company can then take the product it received at a below-market rate and sell it at market rates, thus pocketing the difference as profit. By its own estimate, it should have an internal rate of return of 60%, on average, for its 15 deals.
The cannabis royalty model also provides instant geographic and product-based diversification for investors, meaning a production slowdown at one or two facilities isn't enough to completely disrupt Cannabis Wheaton's business.
Though it may not be an innovator in the traditional sense of the word, it's very much a disruptor like Apple. With 230,000 kilograms of cannabis expected to be delivered by 2019, placing it among the largest sellers of weed in Canada, this small-cap stock should be on aggressive investors' radars.
The next big software company
Maxx Chatsko (Atlassian Corporation): It's one thing to beat out competitors and gobble up market share, but it's another thing entirely to accomplish that in an industry that's growing hand over fist. A company has to grow incredibly fast to gain market share in an expanding market. Yet Atlassian has continued to do just that, notching year-over-year revenue growth of 43% in the most recent quarter. That's even more remarkable when you consider that it's a $13 billion company.
Atlassian provides communication, collaboration, and productivity software for small teams, small businesses, and even some of the largest companies on the planet. That market had an estimated value of $16 billion in 2016, but it's expected to nearly double to $28 billion by 2020, according to a 451 Research market report. The company has absolutely dominated the market, captured an outsize portion of the industry's expansion, and shows no sign of stopping. In fact, it's on pace to deliver $1 billion in revenue in the next 12 months. It had just $215 million in revenue for all of 2014.
It's worth pointing out that the software leader has forgone profitability in the present to focus on hypergrowth. While that could be a red flag to some investors, Atlassian's losses have been mostly driven by large increases in R&D expenses (i.e., new product development). But it hasn't affected the company's cash flow, which has added gobs of cash to the coffers. Total cash and cash equivalents tallied $679 million at the end of 2017, while there was no debt -- or dilution -- to speak of.
Something else that's important to me as an investor is that Atlassian is a no-nonsense company that's serious without taking itself too seriously. That -- along with a set of core values -- has created an enviable company culture, which is the lifeblood of any business. It may not show up in the financial statements, but it certainly goes a long way toward enabling the hypergrowth shareholders have enjoyed so far.