Since their IPOs in 2019, Peloton Interactive (PTON -3.52%) and Pinterest (PINS -0.67%) share prices are up roughly 393% and 192%, respectively. The stock price gains for each company have been fueled by rapidly increasing revenues that show no signs of slowing down.

Customer appetite for Peloton's products is so strong that delivery of most bikes takes over two months. Meanwhile, Pinterest was able to add 100 million monthly active users in 2020.

The stock price ride upward for both companies has been somewhat volatile, and each faces some challenges ahead. However, the two have proven they have real investment potential. Let's take a closer look at why these two growth stocks have what it takes to continue providing solid returns to shareholders. 

A chart comparing the stock price increases of Pinterest and Peloton.

Data source: YCharts.

1. Pinterest 

One of the driving forces of Pinterest's revenue growth is its quickly expanding monthly active user base. At the end of 2020, Pinterest had 459 million monthly active users, which was up from 335 million at the end of 2019. Millions of people stayed home more often and turned to this social media site for entertainment, ideas, and motivation. A larger base of users makes Pinterest more attractive to advertisers looking to reach potential customers.

Pinterest's user base is largely skewed internationally, with 78% of its members residing outside of the U.S. Interestingly, however, 82.4% of its overall revenue comes from the U.S. That's because Pinterest is only in the beginning stages of monetizing its international base. As it builds out that capability, it could increase the average revenue per user (ARPU) it generates closer to its peer social media companies. ARPU in the most recent quarter was $1.57 for Pinterest, which was up by 28.6% from the previous year, but still far below the ARPU of $8.62 that Facebook generated. 

The increasing number of users and average revenue per user are getting Pinterest closer to profitability. Net income was positive in the fourth quarter, and it was the first time since 2018 that the company had positive net profits. It still has not had a profitable year, but with the pace of revenue and user growth, it appears to be only a matter of time.

A woman exercising on a stationary bike.

Image source: Getty Images.

2. Peloton 

Sales are surging for Peloton as the coronavirus pandemic forced many gyms across the U.S. to close their doors. Even when gyms have reopened, some former members may still find it safer and more convenient to exercise at home. Still, revenue has been increasing by over 100% for six years in a row, which should assuage investor concerns that sales will fall off dramatically in the aftermath of the pandemic.  

Peloton's biggest challenge is delivering on the overwhelming demand for its products -- it has a backlog of orders, and wait times for new products are approaching 10 weeks. If you're going to have a problem, too many orders is a good one to have. Nevertheless, Peloton needs to resolve manufacturing supply constraints and delivery delays to fulfill customer orders in a reasonable amount of time, or it risks losing sales to competitors.

To that end, Peloton has made two major acquisitions. The most recent one on Dec. 21, 2020, was a $420 million cash deal for Precor, a manufacturer and distributor of exercise equipment. And in October of 2019, the company acquired Tonic Fitness, a manufacturing company in Taiwan, for $45.2 million. Already, the acquisitions are increasing its output significantly and should fuel increasing sales as it better matches supply with demand. Customers will certainly be more inclined to purchase if they are going to receive their exercise equipment sooner.

Like Pinterest, rising revenue and scale efficiencies have led Peloton to turn the corner on profitability. The exercise equipment maker is now on pace to have positive annual earnings for the first time in its brief history as a public company.

Pinterest and Peloton shareholders can continue to look for positive momentum over the next several years. Each is increasing customers and revenue rapidly and making investments to fuel those increases even further.