Investors have been on quite a ride in 2020. The market took a huge nosedive in March, leaving investors wondering how far stocks would fall and how quickly they might recover. The drop didn't last long, and the impressive gains the market has made since then have many investors wondering which technology stocks are worth investing in for the upcoming year.
To help you find several potential winners, we asked a few Motley Fool contributors for stocks they think will benefit investors in the upcoming year. They came back with The Trade Desk (TTD 3.52%), MercadoLibre (MELI +0.32%), and Shopify (SHOP 1.24%). Here's why.
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The Trade Desk: at the forefront of digital advertising
Danny Vena (The Trade Desk): It was nearly two years ago when I named The Trade Desk my highest-conviction stock for 2019. The programmatic advertising specialist had gained 150% in 2018, and some investors asked how I could justify my conviction, particularly with a company that had already soared.
Here's the thing: The digital advertising maven has developed a programmatic platform that uses high-speed computers and sophisticated algorithms designed to automate the process of real-time bidding on advertising. The company's state-of-the art platform can process 9 million ad impressions and quadrillions of permutations each second to ensure the ad is targeted to the right consumers.
The Trade Desk system helps ad buyers to create, manage, and optimize data-driven advertising campaigns with a few clicks of the mouse. Marketers can target specific audiences, using a variety of metrics to increase the likelihood that the end viewer is in the market for the company's goods or services.
This system is far superior to the blanket approach that's been used for years: Try to get the ad in front of as many people as possible, as often as possible, in the hopes that the message will connect with a few of them.
I had similar conviction coming into this year, even after The Trade Desk stock gained 124% in 2019. Then, the unthinkable happened: Coronavirus struck. The economic uncertainty caused by the pandemic and the resulting bear market dragged The Trade Desk's stock down by more than 44%. Marketers slashed their advertising budgets to rein in spending. Undaunted, I bought more.
It turns out that companies still needed to get in front of consumers, even as fears remained. One of the key drivers of The Trade Desk's growth has always been the ability to measure the results, ensuring advertisers are reaching the right consumers and getting plenty of bang for their buck. That brought marketers back to The Trade Desk's platform in droves -- even as other advertising platforms languished.
For the third quarter, The Trade Desk reported revenue that jumped 32% year over year -- growth that was nearly back to pre-pandemic levels. Several of the company's high-growth channels delivered, helping support the strong results. Advertising via connected TVs was up 100% year over year, while mobile audio and video both soared 70%. The Trade Desk continued its stellar track record of customer retention, which stayed above 95%, something it's done every quarter for five years.
This isn't an anomaly, either. The Trade Desk's sales have a compound annual growth rate (CAGR) of 55% between 2015 and 2019, as its revenue has grown more than 300%. At the same time, the CAGR for net income is 61%. This helps illustrate why The Trade Desk is a best-in-breed company, with a long runway ahead. That's also why it's still one of my highest conviction stocks for 2021.
Record-breaking performance in progress
Brian Withers (MercadoLibre): Its stock has more than doubled this year. Shares are priced above $1,400, and it has a lofty price-to-sales ratio in the low 20s. Why would you want to buy this Latin American e-commerce and payments operator before the new year? Well, for starters, it is most likely executing on its best quarter ever right now. In addition, the market is underestimating the long-term potential of this quality company. Let's dive into three more reasons why you should consider adding this gem to your portfolio for the new year.
First, the trend of consumers buying goods online in Latin America is still in its infancy, and it's growing fast. Consumers have been flocking online to avoid brick-and-mortar retailers during the pandemic and MercadoLibre has benefited. It is the top e-commerce marketplace in the region, and it experienced triple-digit growth on its marketplace platform the second quarter in a row. Three countries -- Brazil, Argentina, and Mexico -- make up more than 90% of its commerce revenue, but the other 15 countries it operates in grew even faster. Management is especially excited about Columbia and Chile as they have exceeded marketplace sales-volume expectations. It may have to do with the company's massive investments in its logistics network, which now enables free shipping for its top five countries making up most of its sales. Despite all the success in e-commerce, that isn't the only reason to get excited about this stock.
Second, its payment platform, MercadoPago, gives the company access to a huge, untapped market. Since 2003, this service has enabled customers to easily buy products online with a digital wallet. In the most recent quarter, it saw a record 96% of its e-commerce purchases use MercadoPago to pay for goods. But its consumers don't just use their digital wallets to buy items on its marketplace. Last quarter, its 60 million payers combined for more than $8 billion in spending in their local communities. This amount was almost triple what it was in the second quater of 2019, driving its fintech segment to a record revenue mark.
Third, this Latin American tech company is innovating to provide end-to-end financial services for the massive unbanked and underbanked population in the region. In addition to online and in-store payments, it already provides services like person-to-person payments, debit and credit cards, and a money market fund for providing interest in cash sitting in the digital wallet.
To call MercadoLibre just an e-commerce platform or a payments company is selling it short. With an ecosystem of complementary services, this regional specialist has many avenues in which to grow, long into the future. Additionally, the region has almost twice the population of the U.S. Also, MercadoLibre's 126 million active users only make up about a third of all the region's internet users, giving it plenty of room to run. With its leading e-commerce platform, fintech innovation, and proven ability to grow, this quality operator might just be the one stock you'll want to put in your online cart and buy before we say goodbye to 2020.
This e-commerce stock is a must
Chris Neiger (Shopify): Shopify is an e-commerce platform company that helps businesses of all sizes set up online shops. As you might imagine, Shopify's business has grown exponentially in 2020 as many companies moved their businesses online because of the pandemic.
Shopify helped its growing customer base set up e-commerce shops for the first time or expand current ones when social distancing took root. The result was a 109% increase in Shopify's gross merchandise volume (the amount of money spent on Shopify's platform) and a 96% jump in sales in the most recent quarter.
Shopify's growth in 2020 has led investors to push up the company's share price 156% this year. I'm not going to try to predict how well the company's stock will do in 2021, but investors should know that Shopify is tapping into a massive e-commerce industry that isn't anywhere near done growing.
About two years ago, e-commerce sales accounted for just 11% of all U.S. retail sales. Now, that percentage has jumped to 16%. That's a lot of growth in just two years, but it also shows that e-commerce still has a lot of room to grow in the coming years.
Shopify has proved in 2020 that it's one of the best e-commerce platform companies for businesses and investors. As some businesses bring back in-person shopping in 2021, some of Shopify's stellar growth from 2020 could slow down a bit. But that doesn't mean the stock isn't worth purchasing.
The bigger picture here is that e-commerce still has a lot of room to expand, and Shopify is leading in this space. The company proved in 2020 that it has what it takes to help companies weather some of the toughest conditions they've ever faced. And as e-commerce expands in the coming years, Shopify's platform will benefit from the long-term shift to online sales.
