As we close out the year 2020, anyone who's invested in the stock market has had the opportunity to see what a wild ride it can be. Thinking back over the past decade, the changes in technology are mind-boggling -- which means it's hard to wrap your head around what might be going on at the end of the next decade.
Fintech, or financial technology, has exploded over the past few years, and it's definitely leading finance into the future. While we can't begin to imagine what 2030 is going to look like, Square (SQ -4.10%), BlackLine (BL -3.59%), and Lemonade (LMND -3.17%) are companies that are likely to reward investors over the next 10 years.
Payment solutions for small and medium-sized businesses
Square was one of the biggest winners of 2020, with its stock gaining close to 300% so far. And although it trades around a whopping 300 times 12-month trailing earnings, this is a business with plenty of upside left.
The company has been a leader in launching real payment solutions that have changed the way small businesses work. Brian Grassadonia, who leads the team behind Square's popular Cash App, noted that before Square's small-business revolution, many smaller businesses couldn't get bank approvals to accept credit cards.
And Square has continued to launch new products and services that are shaking up traditional finance. It has evolved from an emphasis on physical small businesses to integrating digital elements and e-commerce. It also released Cash App, a fully separate ecosystem for quick and easy peer-to-peer payments.
CFO Amrita Ahuja pointed out that engaged customers do more transactions and bring in greater gross profit. The company is focused on expanding the ecosystem so customers can conduct all of their business in one place, increasing engagement and gross profits for the company.
With $3 billion in third-quarter sales, a 140% increase, versus rival PayPal's $5.5 billion and 25% growth, Square still has lots of opportunity. With its culture of innovation, it will be exciting to see what the company can bring out over the next 10 years.
Automated accounting services to make counting cash easy
BlackLine hasn't done too badly this year either, gaining more than 170% at Tuesday's prices, after three years of slower growth. It was one of the beneficiaries of an accelerated shift toward digital and automation brought about by COVID-19.
The company offers automated accounting services for large and small businesses that simplify accounting processes such as reconciliations. It has a very specific focus, but at the same time it integrates all of a client's financial applications to make accounting go smoothly. It's also cloud-based, eliminating the need for heavy and expensive hardware.
One example is what the company did for Coca-Cola. After implementing BlackLine's software, Coca-Cola reduced the number of employees involved in reconciliations by 55% and saved $600,000.
Some 56% of Fortune 50 companies use BlackLine's services, but it's still a fairly small company, taking in $90 million in the third quarter. That's a 21% increase over the prior year, which is healthy, even if not outstanding as far as many software-as-a-service (SaaS) companies go. But it invests $40 million annually in aggressive research and development, and it has lots of space to grow. It's also demonstrating the power to expand, recently acquiring automated accounts receivables company Rimilia.
There's a lot to like about BlackLine. It's upgrading traditional accounting, and investors are confident about what it can do over the next decade.
Disrupting traditional insurance with socially conscious business
If you shudder at the thought of speaking to your insurance company, Lemonade's got your number. Founders Shai Wininger and Dan Schreiber set out to overhaul standard insurance practices and created a company that relies primarily on artificial intelligence and behavioral economics.
What that means is that it has an intake bot that asks a client questions and determines a policy price. It has another bot that assesses claims and handles about 30% of them instantly, without any human interface. That saves the company money, which is passed on in competitive pricing for customers. Lemonade also allows customers to donate money left after fees and claims are paid to charity.
Not only has Lemonade's growth has been spectacular, but it's also becoming a more efficient company. The gross loss ratio, which measures how much of a policy gets paid out in claims, continued to improve in the third quarter to 72%, down 9 percentage points year over year.
In a recent display of its David versus Goliath mentality, Lemonade took on Deutsche Telekom, which claimed Lemonade was infringing on its use of the color pink in its media. Deutsche Telekom trademarked the color in France 25 years ago, but Lemonade took the company to French court because it doesn't use the color despite the trademark. After the court ruled in Lemonade's favor, Schreiber said: "The company's actions just smack of corporate bully tactics, where legions of lawyers attempt to hog natural resources -- in this case a primary color -- that rightfully belong to everyone." That's the kind of subversive but intrepid culture that's winning Lemonade accolades and customers.
Lemonade launched its initial public offering (IPO) in July, and its stock has gained more than 70% since its first day of trading. That's a lot for a company that hasn't yet turned a profit, but forward-thinking investors can see the vast potential for Lemonade to grow sales and earnings in the next decade and beyond.