There's a saying in investing that winners keep winning.
Letting winners ride can work in investing because the factors that made a company successful in the past often extend into the future. Jeff Bezos had the vision to make Amazon an online bookseller early in the days of the internet, and that vision led to more wins like AWS, Prime, and more. The same can be said for Netflix, Walt Disney, and even Apple, which had core markets and strategies that allowed them to grow -- and win -- year after year.
Today, five companies that I think will keep winning are Square (SQ 2.32%), Snap (SNAP 27.63%), Spotify Technology (SPOT 0.20%), DocuSign (DOCU -0.26%), and Okta (OKTA -0.69%).
Image source: Getty Images.
1. Square: Upending financial services
Square started as a simple way to take payments on mobile devices, but it's becoming so much more. With Square, you can now run a business, invest your money, borrow funds, transfer money to friends or businesses -- and soon, deposit your cash in a bank account.
Consider the companies Square is trying to upend. It's going after Visa and Mastercard's credit card business with its money transfers, and Bank of America and JPMorgan Chase's deposit and loan business with its bank. On top of that, it offers crucial infrastructure -- like calendar tools and payroll and inventory management -- for all kinds of businesses. When you consider just how big the companies it's disrupting are, its current market cap under $100 billion may make it a steal.
SQ market cap data by YCharts.
Square has proved to be more nimble and innovative than its competitors, and I don't think that will change. A decade from now, it may be the main financial tool used by millions of people, and if it is, it will be a much more valuable company.
2. Snap: Growing in social media
If you haven't looked at Snap as an investment in a while, it may be time to take another look. The company has an active user base, is a leader in augmented reality (AR), and is rapidly growing revenue. It has over 265 million daily active users, up 22% from a year ago, and approximately 75% of those users in the U.S. are from the all-important 13-to-34-year-old cohort.
Snap is monetizing those users better as well. In 2015, it generated $0.59 per user in revenue, but that jumped to $10.09 per user in 2020. So with more users generating more revenue per user, Snap is a high-growth stock with a rapidly improving bottom line.
SNAP Revenue (Quarterly) data by YCharts.
I think Snap is just scratching the surface of its potential. The company has made some very compelling AR tools that are making their way into its Spectacles glasses. And with more AR hardware coming out, Snap is well-positioned to be a leading software platform for developers.
3. Spotify: The future of podcasting
Music has always been at the core of Spotify's business, but the company is becoming a larger player in podcasts and digital advertising. Acquisitions like the popular podcast networks The Ringer and Megaphone and a deal with Joe Rogan for his podcast have made the company a leader in attracting listeners, but what it's doing with those listeners is more important.
Within podcasts, Spotify has introduced what it calls streaming ad insertion, which will insert ads targeted to the user. Targeted advertising has always been the goal of building the podcast business, and it's becoming a reality.
You can see above that Spotify's revenue has grown quickly over the last three years and is accelerating now that podcasts are being monetized more efficiently. This is a winning stock that I think will keep winning, potentially becoming one of the world's most important advertising platforms.
4. DocuSign: Sign here
If you've signed a document online in the past year, it's likely to have been with DocuSign. The company has become the go-to platform for signing legal documents, making contracts and other agreements easier for both businesses and consumers.
DocuSign has nearly tripled revenue over the last five years, and that trend isn't stopping. The pandemic has shown just how valuable digital contracts can be, and it is hard to see the world going back to more paper documents.
With these tailwinds, DocuSign is a tech stock that I think has years of growth ahead.
5. Okta: The key to a digital identity
Another company that's built a digital presence that should grow for the foreseeable future is Okta. The digital-identity company provides sign-in authentication for thousands of companies and is used by millions of people as an integral part of their everyday workflow.
Has the company been winning? Look at the revenue chart below.
OKTA revenue (quarterly) data by YCharts.
Investors have been worrying about Okta's slowing revenue growth, but you can see that growth is still outstanding. And Okta's products are extremely sticky. As security becomes more important to our digital lives, I think this is a company that keeps growing and ultimately leverages its crucial service into a highly profitable business.
Extending the winning streaks
These are all stocks that have done extremely well for investors, in large part because their businesses keep growing. And I think the future is bright for Square, Snap, Spotify, DocuSign, and Okta in an increasingly digital world. If winners keep winning, these are stocks to hold in your portfolio for a long time.
