It can be tough for investors to keep calm amid the barrage of headlines regarding the trade war, tariffs, and other macro headwinds. However, long-term investors -- those who think in terms of decades instead of quarters -- should tune out that noise and focus on buying high-quality companies with plenty of room to run.
China's e-commerce and cloud leader
Alibaba's Tmall and Taobao marketplaces make it the top e-commerce player in China. It also owns the country's largest cloud platform and an expanding ecosystem of digital services, including the video streaming site Youku Tudou, the music streaming platform Alibaba Music, and the UC web browser. It's also one of the top makers of smart speakers in China.
Alibaba generated 87% of its revenue from its core commerce unit last quarter. That business is Alibaba's only profitable unit, and supports the ongoing expansion of its ecosystem against rivals like Tencent and Baidu. Analysts expect Alibaba's revenue and earnings to rise 29% and 26%, respectively, next year, which are stellar growth rates for a stock that trades at 20 times forward earnings.
China's middle class is expected to hit 550 million by 2022, according to McKinsey & Company, and continue growing over the next few decades. As China's top e-commerce and cloud company, Alibaba should profit from that growth as consumers buy more products online and companies rely more heavily on cloud platforms.
That's why Alibaba remains one of the best growth stocks to buy and hold over the long-term, and why investors should accumulate more shares on any trade war-related dips.
A niche leader in mobile apps
Twilio's cloud platform processes calls, text messages, videos, and other content from app developers. In the past, developers built those features from scratch -- which was often buggy, time-consuming, and tough to scale. Today, developers simply outsource those features to Twilio's platform with a few lines of code.
Twilio's first mover's advantage in this market attracted a lot of major customers, including Airbnb, Lyft, and Twitter. Its ecosystem is also sticky, since it keeps cross-selling new services and it's tough for customers to migrate their apps to another platform. That's why Twilio's dollar-based net expansion rate, which measures its revenue growth per customer, has remained comfortably above 100% ever since its IPO three years ago.
Twilio expects its revenue to rise 71%-72% this year, boosted by its acquisition of SendGrid, and for its adjusted EPS to grow 55%-64%. Analysts expect its revenue to rise 33% and 82%, respectively, next year -- and that streak of double-digit growth should continue as more developers launch mobile apps with integrated communication features.
Twilio trades at over 420 times forward earnings, but that high multiple could contract quickly as its earnings improve. It remains a speculative stock, but it could head much higher over the next few decades.
A big winner in the war on cash
Square disrupted the traditional POS (point of sale) market with a cloud-based payment system that processed payments with an app. It expanded that ecosystem with dedicated hardware devices and an expanding ecosystem of services for analytics, payroll management, website designs, small loans for businesses, and other services. It also tethered customers to its ecosystem with the popular peer-to-peer payments app Cash.
Square consistently generated high double-digit growth over the past few years, even as it faced tougher competition from rivals like PayPal. In recent quarters Square streamlined its business by divesting weaker businesses (like its food delivery platform Caviar) and expanded its stronger subscriptions and services -- which grew their revenue 87% annually last quarter.
Square expects its adjusted revenue (which excludes transaction and bitcoin costs) to rise 43% this year, and for its adjusted EBITDA to jump 60%. It expects much of that growth to come from its Cash App, Instant Deposit service, and Square Capital lending platform. Sales of new hardware products should tether more merchants to its ecosystem, while forward-thinking efforts -- like bitcoin trading on Cash -- could keep it ahead of the tech curve.
Square isn't cheap at 55 times forward earnings, but that premium is justified by its long-term growth potential. Allied Market Research estimates that the global mobile payment market will grow at a compound annual growth rate of 34% between 2017 and 2023, and that momentum should continue as cash payments fade away.