Growth-oriented tech investors are always seeking out the next disruptive company that can generate multibagger gains. Many of those speculative bets will flop, but the ones that achieve their ambitious goals can generate explosive gains for investors who can stomach the volatility.
Past performance never guarantees future gains, but studying previous multibagger tech stocks can give investors a deeper insight into how disruptive technologies generate massive growth.
Let's take a look back at Square (NYSE:SQ), Shopify (NYSE:SHOP), and Amazon (NASDAQ:AMZN). These three companies all operate in the high-growth fintech and e-commerce arena, and they all turned a modest $10,000 investment in their IPOs into more than $200,000.
1. The fintech pioneer: Square
Square, the fintech company that disrupted the point-of-sale system market with its streamlined payment apps and hardware, went public at $9 per share in 2015. If you had bought 1,111 shares of Square with $10,000, your stake would be worth nearly $220,000 today.
Square initially sold iPhone dongles and iPad docks for processing debit and credit card payments, then eventually sold stand-alone payment processing devices. It tethered its merchants to its ecosystem of cloud-based services, which included analytics, payroll, and marketing tools.
For consumers, it launched its Cash App for peer-to-peer payments in 2013, and eventually added Bitcoin purchases and free stock trades to the platform. Square ended 2020 with 36 million Cash App users, up 50% from a year earlier, as its usage rates soared throughout the pandemic.
Between fiscal 2015 and 2020, Square's annual revenue soared from $374 million to $9.5 billion. Its merchant-facing transactions decelerated during the pandemic, but the Cash App's growth in Bitcoin transactions offset that slowdown with its lower-margin revenue.
Analysts expect Square's revenue to more than double this year as its adjusted earnings grow 79%. Its growth will likely decelerate from those Bitcoin-boosted levels next year, but Square could still have plenty of room to expand as businesses and consumers rely more on its digital payment services and use less cash.
2. The e-commerce services pioneer: Shopify
Shopify went public in 2015 at $17 per share. If you had purchased 588 shares of the e-commerce services company with $10,000, your stake would be worth nearly $620,000 today.
Shopify's self-serve e-commerce tools enable smaller businesses to quickly set up online stores, process payments, fulfill orders, and launch marketing campaigns. Over 1.7 million merchants now use those services -- up from just 162,261 at the time of its IPO.
Shopify's decentralized network of merchants represents a disruptive threat to Amazon, eBay, and other online marketplaces, since it enables smaller businesses to forge their own online identities without joining a crowded third-party marketplace.
Shopify's annual revenue soared from $205 million in fiscal 2015 to $2.93 billion in 2020. It was already growing at a healthy clip prior to the pandemic, but demand for its services kicked into overdrive throughout the crisis as more physical businesses migrated online.
Shopify will face tough year-over-year comparisons over the next few quarters, but analysts still expect its revenue and adjusted earnings to grow 52% and 10%, respectively, this year. The stock isn't cheap, but Shopify could still attract millions of new businesses over the next few years.
3. The e-commerce and cloud king: Amazon
Amazon went public in 1997 at $16 per share. You could have bought 625 shares for $10,000, and its three subsequent stock splits would have boosted your position to 7,500 shares -- which are worth $23.7 million today.
Amazon remained unprofitable for many years after its IPO, but economies of scale eventually kicked in at its e-commerce business. The expansion of its cloud platform, Amazon Web Services, which generated higher-margin revenue than its online marketplaces, also stabilized its profit growth.
AWS is now the world's largest cloud platform, and its growth enables Amazon to expand its retail business with lower-margin or loss-leading strategies. Those initiatives fuel the growth of Amazon Prime, its sticky ecosystem which surpassed 200 million paid subscribers earlier this year.
Back in 1997, Amazon generated $149 million in revenue from only 1.5 million customers. It generated $386.1 billion in revenue in 2020, and Wall Street still expects its revenue and earnings to grow 27% and 33% this year -- even as it faces tougher comparisons in a post-pandemic market.
Amazon's virtuous cycle of growth -- which flows from AWS to Prime to its retail businesses -- should continue for years and continuously widen its moat against its tech and retail competitors.