The cryptocurrency market has received a ton of attention recently. Since these assets don't produce any cash like regular businesses aim to, speculators can't value them in any traditional sense. But the power of social media can send some digital currencies, like Dogecoin, soaring astronomically for no real reason at all.
It's not surprising that younger people in particular are attracted to cryptocurrencies. They view the digital assets as a way to get rich quickly, which is really nothing more than gambling. This could end badly for these folks.
Over the long term, however, the stock market has been shown to be an excellent tool for building sustainable wealth. So forget the useless meme cryptocurrency that is Dogecoin and focus instead on these two high-potential, high-growth companies that can make you rich over time.
Etsy (ETSY 9.02%) is an e-commerce platform where shoppers go to find unique, handcrafted items they can't find anywhere else. With operations now in seven different countries, the company empowers entrepreneurs to follow their passions by helping them grow their small businesses.
The success of Etsy's 4.4 million sellers is noteworthy. In the U.S., for example, these domestic sellers added $13 billion of GDP to the economy and created 2.6 million jobs. But the value proposition is also significant for Etsy's 81.9 million buyers. In a company survey conducted last year, an eye-popping 88% of buyers agreed that Etsy had goods they couldn't find anywhere else.
Although Etsy's marketplace has been expanding rapidly for many years, the onset of the pandemic led sales to skyrocket 111% in 2020 compared to 2019. Consumers flocked to the website last spring to purchase masks, but the company's largest product categories during the year were home furnishings, personal accessories, and craft supplies.
Etsy truly does offer a differentiated service and experience for both its sellers and buyers. Both groups understand the value they receive, which should support the company's growth for many years to come.
Because Etsy is a marketplace business (it simply connects buyers and sellers and owns no inventory itself), profits can soar even faster than the top line. In 2020, net income increased 264% from the prior year, something shareholders can appreciate.
Management believes the market for "special" goods (what Etsy is known for) is roughly $100 billion in its six core markets (not including India). Based on $10.3 billion in gross merchandise sales (GMS) last year, that's 10% of the total market. If we include the massive opportunity in India, it's easy to see how much room Etsy still has to grow.
Besides exciting growth, Roku (ROKU 2.15%) has two similarities to Etsy: It's a platform business, and it's also benefiting from a strong secular trend, this time in streaming entertainment.
Roku's licensed smart TVs and connected devices bring together viewers, streaming companies, and advertisers. It seems like the number of streaming services out there continues to rise, so this is a way for consumers to have all of their options in one place.
Furthermore, the fact that 70% of streaming is watched on TVs makes Roku a strategic partner for content companies looking to reach more customers and advertisers that want to target these same customers as traditional cable TV keeps declining.
Roku's ecosystem is a win-win-win for all parties, and the pandemic's acceleration of streaming only cemented this. Revenue in the most recent quarter (ended Dec. 31st) rose 58% year-over-year, with active accounts now totaling 51.2 million. Engagement is also through the roof -- those accounts watched a whopping 17 billion hours of shows and movies in the quarter.
As the business continues to scale up, the gross and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margins expand meaningfully. The latter figure was 17.5% last quarter, a big uptick from being negative just two quarters earlier.
It looks as though streaming is the way everyone will consume video in the future, and Roku stands to gain tremendously from this.
Focus on what matters
Unlike Dogecoin, Etsy and Roku are two legitimate business operations. They have huge expansion opportunities, which are further bolstered by their platform structures and network effects. And both deliver significant value to the various groups of users they serve.
Some of the most successful and fastest-growing companies in recent times all have this trait, making it one of the best business models investors want to own. Forget about the latest cryptocurrency craze. Instead, stash your money in these stocks and be patient and willing to hold for the long term.