Bitcoin (BTC +0.37%) stands as one of the best-performing assets of all time, and the market-leading cryptocurrency has rallied roughly 700% over the last year to hit a price of roughly $54,000 per coin. As impressive as the cryptocurrency's recent gains have been, there are stocks that could significantly outperform Bitcoin from here on out -- and companies fresh off their initial public offerings (IPOs) are a good starting point if you're willing to take on risk in pursuit of explosive gains.
With that in mind, we asked three Motley Fool contributors to identify an IPO stock that they believe is poised to deliver returns that surpass Bitcoin from here on out. Read on to see why they think PubMatic (PUBM +0.73%), QuantumScape (QS +2.17%), and Coinbase have what it takes to post huge gains.
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This advertising innovator could crush the market
Keith Noonan (PubMatic): Digital advertising has played a huge role in shaping the evolution of the internet, and the category still has a huge runway for long-term growth. PubMatic is a programmatic advertising specialist that provides a software platform that helps boost monetization across devices, channels, and ad formats.
People are spending more time online than ever, and it's likely that time spent in digital channels will continue to edge higher and prompt more ad spending to shift to the internet and streaming video distribution. Factor in continued growth for the global population and room for continued ad targeting efficiency and it looks like PubMatic has some very favorable tailwinds at its back.
Programmatic advertising is improving efficiency for both ad purchasers and publishers. Advertisers and agencies get superior returns on their placements and publishers also get better revenue. PubMatic is playing the middleman role, and the business has huge room for expansion so long as it can facilitate this dynamic.
The company managed to grow its sales 64% year over year last quarter while posting a gross profit margin of nearly 80%. Based on the business' recent gross margins, PubMatic should go on to post impressive profits if it continues to expand its sales base.
With a market capitalization of roughly $2.4 billion, the company is still a relatively small player in the digital ad space. However, that should make it easier for the business to grow sales and earnings on a relative basis, and PubMatic's comparatively small size could wind up working to the advantage of investors.
QuantumScape has the potential to be an EV game changer
Jamal Carnette (QuantumScape): Automakers are rapidly planning for a fully electric future. Volkswagen recently announced an ambitious goal that electric vehicles (EVs) as total sales will rise to 70% in Europe and to 50% in the U.S and China by 2030. General Motors also has ambitious plans, with CEO Mary Barra committing to be fully electric by 2035.
There's just one problem: Ultimately, consumers make the decision and not automakers. To attain wide-scale adoption, automakers will need to address consumer concerns about the limitations of EVs, specifically battery technology.
Although the cost to manufacture EV batteries has declined by 90% since 2010, EV batteries are still more expensive than traditional gasoline engines. Other salient concerns are long charging times, total battery life, and poor performance in subzero conditions. These will need to be addressed before we hit the EV-inflection point.
Enter QuantumScape. The company's revolutionary solid-state lithium battery technology is superior to current batteries in every way. The technology allows for smaller and cheaper batteries that charge quicker and will last longer than traditional batteries. Volkswagen is on board in a significant way: It's a major investor, and VW's head of battery technology Frank Blome is on QuantumScape's board.
Sounds great, right? Here's the rub: QuantumScape's revolutionary battery technology will not be available until 2024. Competitors like Panasonic (which currently supplies Tesla's batteries), LG Chem, and China's BYD are using inferior technology but the product is available now.
Admittedly, QuantumScape is for investors with a high risk tolerance and long-term focus. Daily moves greater than 10% will be common and volatility will be significantly higher than the market. Considering we're comparing the company to Bitcoin (and you clicked on the article) it's likely this is understood to be a speculative investment and not the bulk of your investment portfolio.
The exchange titan
Joe Tenebruso (Coinbase): If you're intrigued by the potential of Bitcoin but not yet comfortable with investing directly in cryptocurrencies, consider Coinbase. Investors will soon have the opportunity to own shares in the leading U.S-based cryptocurrency exchange after its upcoming stock market debut.
Coinbase is reportedly planning a direct listing of its stock in the coming weeks. A direct listing enables a company's employees and early investors to sell shares directly to the public, without the need for an investment bank to underwrite the stock sale, as is done with a traditional initial public offering (IPO).
Bitcoin's rising popularity and soaring price have been a boon for Coinbase. The digital asset exchange's revenue more than doubled to $1.3 billion in 2020, fueled by a surge in cryptocurrency trading volumes. Coinbase is also highly profitable, with net income of $322 million last year.
Coinbase's revenue and profits should continue to grow as more institutional and individual investors begin to allocate capital to Bitcoin and other crypto assets. Respected investors such as Paul Tudor Jones, Stanley Druckenmiller, and Bill Miller have recently expressed their bullish views on Bitcoin. In doing so, they've helped to bolster Bitcoin's legitimacy among hedge funds, family offices, and pension funds that collectively manage trillions of dollars of assets.
If these powerful institutional investors decide to allocate just 1% of their capital to the crypto markets, the price of Bitcoin and other cryptocurrencies could soar. And the resulting boom in trading volumes would likely also help to drive Coinbase's revenue and profits significantly higher.
