Data from Pew Research suggests that millennials overtook baby boomers in 2019 as the largest age demographic in the U.S., and people within this increasingly influential generation are just beginning to enter their prime spending years. With the rise of Robinhood and other app-based securities-trading platforms, millennial investors are also becoming a more influential part of the stock market.
The increased spending power and market influence make millennial-focused stocks a category worth focusing on for investors of all ages. With that in mind, here's why Zynga (ZNGA), Hanesbrands (HBI -0.94%), and Match Group (NASDAQ: MTCH) all look like stocks that are poised for winning streaks.
A report from the gaming research site SuperData estimates that the average millennial spends $112 per month on gaming content. It's very hard to find an entertainment medium that can match gaming's spending and engagement levels, and Zynga is a company in the space that has attractive avenues to long-term growth.
The mobile-game developer's stock has rallied this year thanks to strong performance for its core video game franchises, heightened engagement levels thanks to shelter-in-place and social-distancing conditions created by the coronavirus pandemic, and a big acquisition. Shares are up roughly 55% on the year, but they still trade down roughly 10% from their all-time high.
The video game company completed its $1.9 billion acquisition of Turkish developer Peak Games in July, a move that Zynga expects will boost its daily active mobile user base by more than 60%. Much of Zynga's success in recent years has stemmed from purchasing game-development studios, which help to drive monetization across their respective titles, and its latest purchase looks promising.
Working its monetization magic across Peak's lineup of games could result in substantial and sustained sales and earnings boosts. Zynga also still has a strong balance sheet and is positioned to make additional acquisitions. And new titles from studios that are already under its wing could propel the stock to market-crushing performance.
Hanesbrands might not immediately spring to mind as a millennial-focused stock. Many people probably still think of the company as being synonymous with its namesake socks, underwear, and T-shirts, and it's true that these offerings constitute a substantial portion of the company's revenue. On the other hand, its Champion brand stands as the company's biggest overall growth driver and has become very popular with millennials.
Champion, which was founded in 1919, has reemerged as a popular sportswear and athleisure name over the last five years. The brand's popularity with millennials has been a huge part of its resurgence, and Champion apparel is continuing to see rising brand equity among the age demographic.
While the unprecedented conditions created by the pandemic squeezed Hanesbrands retail operations, there are signs that the Champion brand is still going strong. Sales on the brand's direct-to-consumer website nearly tripled year over year last quarter, and the overall company fared pretty well amid challenges created by the coronavirus thanks to a rapid and well-orchestrated shift to producing face masks and other protective wear. The company even produced masks featuring its popular Champion branding.
Even with its share price climbing roughly 25% over the last month and the coronovirus putting a damper on profits this year, Hanesbrands' stock still trades at just 11 times this year's expected earnings, a valuation that leaves plenty of room for growth. The company also managed to maintain its dividend despite pressures that COVID-19 has put on manufacturing and retail operations, and its shares sport a chunky 3.8% dividend yield as of this writing.
The internet plays a huge role in how the millennial generation meets potential romantic partners. Match Group operates Tinder, the most popular subscription dating app in the U.S. and Europe, and it also operates other top-10 dating platforms, including Plenty of Fish, OkCupid, and Match.com.
Online dating will likely only become more popular, and Match is well positioned to benefit as a growing number of romantic connections are made through digital channels. The company managed to grow sales 12% year over year in the second quarter even as social-distancing initiatives were tamping down on growth, and its paid subscriber base climbed roughly 11% year over year to reach 10.1 million members.
Match mostly generates sales from selling upgraded service subscriptions that make finding romantic partners easier for members. Tinder is the company's biggest performance driver, accounting for roughly 61% of paying users last quarter. But non-Tinder brands also managed to grow sales 9% year over year last quarter thanks in part to a 5% increase in average revenue per user.
The company's dominant position in the dating app category sees it benefiting from the network effects on its individual platforms and from offering leading alternatives to its own software products. Having large user bases on its platforms helps improve the member experience by providing more potential for romantic connections. And if members tire of one service and leave for another online dating app, there's a good chance they'll still be in the Match ecosystem.
As social-distancing measures ease, Match's revenue and earnings growth should accelerate again, and the current trajectory points to plenty of long-term growth in the online dating market.