2020 has been a year for the ages. Spurred on by COVID-19 and the ensuing lockdown on the economy, U.S. stocks entered a bear market quicker than any other time in history -- followed by an equally impressive recovery as the digital economy has become more important than ever before.
We aren't out of the woods yet, but the groundwork has been laid for another period of economic expansion. Three tech companies poised to make an epic run in the next decade are Teladoc (TDOC 2.05%), Square (SQ 1.44%), and Pinterest (PINS 1.72%).
Virtual communication comes to healthcare's rescue
Some investors have been less than thrilled with global leader in telemedicine Teladoc's plan to merge with Livongo Health (LVGO) -- a pioneer of data-driven management of chronic disorders best known for its diabetes treatment. I for one think the combination of the two healthcare technologists (which will leave existing Teladoc shareholders with a 58% stake in the new company, and Livongo shareholders at 42%) makes great long-term sense.
In 2019, Teladoc grew its revenue at a 32% clip. That pace has accelerated to 63% during the first half of 2020 as many households are having remote visits with a health professional for the first time amid the pandemic. The company expects patient visits utilizing its platform to be about 10 million by year-end, equating to full-year revenue growth of at least 77% (and reaching nearly $1 billion for the first time). Livongo for its part grew 122% the first half of the year, hauling in $161 million in revenue.
Together, the new Teladoc will be a powerhouse of healthcare tech. Trillions of dollars are spent every year on healthcare, and telemedicine is expected to play a significant role in helping manage patient and provider costs in the decade ahead. Various research reports expect annual spending on telehealth services to run at a high-teens percentage growth rate every year, turning what was about a $45 billion industry in 2019 into some $200 billion a year by 2027.
Of course, these are just forecasts, and a lot of variables could change in seven years' time. And if digital and virtual health does expand at a double-digit pace, Teladoc certainly isn't going to be the only player in the game. But it doesn't need to be, in such a large and suddenly very important health service sector. For investors looking at least a few years down the road, this stock is worth picking up.
A digital wallet with loads of potential
After a few years of sideways action, Square stock has been off to the races this year, rising 144% so far in 2020 as of this writing. Over the next decade, there could be plenty left in the tank.
The story this year is all about the massive shift to e-commerce. While online shopping was already a high-growth concern before the novel coronavirus, it turns out many merchants and consumers still hadn't fully bought in on the idea. But faced with social distancing orders, that changed in dramatic fashion. Rather than endure a revenue decline as would be typically expected for a merchant services firm during a recession, Square's overall revenue was up 55% through the end of June to $3.30 billion.
Many investors may be turned off by Square stock because it doesn't run a profit. Instead, the company is spending heavily to maintain its momentum. And while the namesake service is helping businesses manage payments and related services, the Cash App subsidiary should be enough to at least partially forgive a lack of bottom-line return at the moment. The mobile payment and peer-to-peer money sharing app generated $1.20 billion in revenue in the second quarter alone (a 361% year-over-year increase) as younger consumers are relying on digital wallets to manage their banking needs -- be it as a daily checking account complete with linked debit card or as a way to purchase investments like individual stocks, ETFs, and bitcoin.
Square continues to experiment with new services and has recently entered the credit industry. It can provide lending to its business users through Square Capital, and is also experimenting with loans of $20 to $200 on Cash App for individuals (going after the very large and lucrative payday loan industry). As Square continues to add new services to its digital money management ecosystem, it could pick up plenty more users in the decade ahead at the expense of the old banking industry.
The emergence of visual discovery
In the 2010s, Alphabet's (GOOGL 3.13%) (GOOG 3.28%) Google and Facebook (META 2.16%) were a duopoly in digital advertising, dominating their respective internet search and social media industries. But shifting tides have left the door open for Pinterest to make some moves. The company's "visual discovery" platform -- part social network, part search engine, part shopping hub -- is quickly picking up new users and creating use cases for businesses looking to reach online audiences.
Because Pinterest generates sales via advertising, 2020 has been a tough year so far. Revenue is up "only" 17% through the first half of the year -- including a paltry 4% year-over-year increase in the second quarter during the worst of the economic lockdown. However, while growth stocks are ultimately judged by their sales trajectory, Pinterest's revenue thus far in 2020 tells only part of the story. Monthly average users increased to 416 million as of the end of June, up 39% from a year ago.
The visual discovery platform thus finds itself with a good problem to have. With shopping behavior perhaps forever altered, millions of new accounts are using Pinterest as a means to make purchase decisions and get ideas. And businesses are following the crowd, buying ads on the platform and uploading catalogs and creative content. As a result, Pinterest reported a 50% year-over-year increase in revenue in July as effects of the pandemic started to ease.
Longer term, this stock has huge potential. Over 400 million active users is nothing to balk at, giving the online social company plenty of ways to expand going forward -- be it via ads, content, shopping and payment services, etc. It may barely operate at a profit right now (free cash flow, what's left after cash operating and capital expenses are paid, was just $9.44 million the first half of the year), but right now it's all about Pinterest's sales growth. And with $1.70 billion in cash and short-term investments and zero debt on the balance sheet, this online platform underdog has ample ability to keep the pedal to the metal.