You can hardly set foot in a store these days without being bombarded by holiday music and the not-so-faint aroma of peppermint. The weather is cooling down but some stocks are only getting hotter. Netflix (NFLX 0.39%), Corsair Gaming (CRSR 3.39%), and Fastly (FSLY 2.55%) have delivered returns of 74%, 155%, and 313%, respectively, this year.
All three are poised to continue crushing the market in 2021 and beyond. Investors would be wise to pick up a few shares of these battle-tested growth stocks in early December.
Netflix: Building a global entertainment empire
The leading name in video-streaming services was forced to slow down its content production this year, because it's difficult to shoot professional-grade films and shows under strict social distancing guidelines. That's why the company tipped its hand in the second and third quarters, giving investors a tiny taste of positive free cash flows.
The COVID-19 pandemic also led to massive subscriber growth in the spring. The membership boost slowed down over the summer, but Netflix is still experiencing the fastest subscriber growth in its history:
The company has restarted its content production efforts and management expects to dip back to negative cash flows next year. That's just a return to Netflix's standard operating procedure, and the climb back to sustainable and then growing free cash flows will continue from there.
Netflix is becoming a major content studio faster than any of the traditional studios can copy its streaming video success. We are watching the early years of an entertainment industry giant for the ages.
Corsair Gaming: A new stock for an old soul
Corsair has been a familiar name to gaming enthusiasts and PC system builders for a long time. The company's operating history stretches all the way back to 1994, but it still feels brand new to many investors. Corsair joined the public stock market as recently as August 2020. The IPO was expertly timed to make the most of a unique moment in history, when consumers found themselves stuck at home and itching for better gaming hardware.
Gaming isn't new and it's not going away anytime soon. In fact, video games are evolving into a culture-defining and interactive art form, as well as a viable business sector for the long haul.
"Today's youth are digital natives, and are all playing games on some device, whether PC, console, or mobile. These are all future potential customers," Corsair CEO Andy Paul said in the third-quarter earnings report. "We believe Corsair is at the center of this growing trend with our wide range of gaming and streaming products."
The financial results support Paul's analysis. Corsair's sales surged 60% higher year over year in the third quarter while GAAP earnings multiplied from $0.02 to $0.40 per share.
The company used funds from the summer's public offering to pay down debt and make a couple of small but strategic acquisitions. This is a solid, mature business that still knows how to take advantage of a fertile growth market. You can be an early investor in this decades-old video gaming business.
Fastly: Faster, better, more secure networking
This content delivery network (CDN) started to heat up in the fall of 2019 as several Hollywood studios prepared to launch their own video-streaming services. The gains accelerated when (stop me if you've heard this before) the COVID-19 pandemic left people stuck at home with nothing fun to do. Some did have work to do from home, so their employers had to create secure links back to the office networks. CDN specialists like Fastly played a large part in both the video-streaming and remote work trends, and will continue to do so for years to come.
Fastly is not the only game in town, of course. Fellow CDN expert Akamai Networks (AKAM -0.45%) has been around since the beginning of time, in internet terms. However, Akamai's business model is mired in decades of tradition and bureaucracy while Fastly was built from the ground up with a lightweight management model in mind. You can sign up for Fastly services in a few clicks but you can't start an Akamai account without talking to a sales rep. This attitude extends to the actual services as well, where Fastly specializes in real-time delivery of freshly created content.
And that's not all. Fastly's stock skyrocketed in early 2020 but slowed down dramatically in the fall. The company's largest customer, Chinese social media network TikTok, was forced to find a buyer of its North American operations or else leave that market entirely. The regulatory action against TikTok was driven by the White House and appears to have lost momentum due to the results of the presidential election, but Fastly investors are still eyeing the stock anxiously until the TikTok saga has run its course.
I'm not worried about the potential loss of TikTok, which accounted for 12% of Fastly's sales in the first half of 2020. The stock took a 37% hit when the executive orders against TikTok started flying, and the stock has barely moved since then.
That's an excessive reaction to the potential (but not guaranteed) loss of a customer representing just 12% of revenues. That makes Fastly a fantastic buy right now.