Choosing great companies to own for the long-term involves looking at the trends that they can capitalize on, as well as the growth catalysts that fuel rising revenue and market share. The pandemic has helped to separate the mediocre companies from those that not only have the financial muscle to survive but can even thrive -- at the expense of their weaker counterparts.
As the financial and economic landscape changes, one trend seems clear: More and more people are hopping online to shop, set up businesses, work, and communicate. What used to be a gradual shift has now been accelerated by this crisis, and it's unlikely that the world will go back to the way it was. Businesses that can ride this wave are destined to do well, and investors in these businesses can also benefit alongside them.
Here are three companies that have a great chance of doubling your money.
Shopify (SHOP -0.78%) has been one of the major beneficiaries of the work-from-home trend. The company, which provides essential tools for entrepreneurs to start online businesses, saw its business grow strongly in the last 18 months for two main reasons: Employees who were laid off found solace in starting their own businesses, while workers who were told to telecommute decided to diversify their sources of revenue by starting their own online shops.
These two trends have come together to power Shopify's business to greater heights. Total revenue for its fiscal 2021 second quarter shot up 57% year-over-year to $1.1 billion, with subscription solutions revenue jumping by 70% year-over-year as more merchants joined the platform. Gross merchandise value increased by 40% year-over-year to $42.2 billion as more people used Shopify's platform. After adjusting for unrealized gains on equity investments, the company posted a net income of roughly $101 million, close to three times more than the $36 million chalked up in the prior year.
Shopify continues to enhance its platform to attract more merchants and customers, thereby setting up a virtuous cycle. For example, it introduced features that help merchants manage their inventory and added analytics and marketing tools to help them analyze their sales. The company has also partnered with a reputable player in the "buy now, pay later" niche to boost its sales and recently rolled out its new Shop Pay installments to all merchants in the U.S. to provide buyers with the affordability and flexibility that comes with this additional payment option.
Alphabet (GOOG -0.44%) (GOOGL -0.55%), the owner of Google, is reporting broad-based growth across most of its products. The surge in people going online has given the technology giant's numbers a boost, and the momentum looks set to continue even after the pandemic has eased.
For its latest quarter ended June 30, Alphabet reported a 62% year-over-year jump in revenue to $61.9 billion. Operating margin expanded by 14 percentage points to 31%, while net income soared by 166% year-over-year to $18.5 billion. Google search saw revenue rise by 68.1% year-over-year, while YouTube advertising revenue rose by 83.7% year-over-year. Cloud services under Google Cloud saw a 54% year-over-year jump in revenue as more businesses went online.
CEO Sundar Pichai also talked about several initiatives to improve Alphabet's offerings. One of these is a new artificial intelligence system called Lambda that can make information more accessible, while another is a new privacy dashboard for Android that can keep customers' data more secure. These improvements should endear more people to Alphabet's suite of services and help the company post steady growth.
As organizations increase the number of cloud services they subscribe to, login credentials, passwords and privileges naturally become increasingly complex. Okta (OKTA -3.48%) helps to solve these pain points by providing a platform for their clients' stakeholders to securely sign on to websites, mobile apps, and cloud applications. With the pandemic pushing more businesses online, Okta's services have seen stronger demand, as the company offers a secure and convenient method for managing user access and privileges.
For the quarter ended Apr 30, Okta reported that revenue grew 37% year-over-year, while remaining performance obligations surged by 52% year-over-year. Operating cash flow also hit a record high of $56.1 million for the quarter, as did free cash flow at $52.8 million. Total revenue has seen a 45% compound annual growth rate since its fiscal year 2019, and the company's dollar-based net retention rate stood at 120%. These numbers attest to the growing demand for Okta's services and the stickiness of its clients as they increasingly rely on the identity management software company to smooth their information technology workflows.
Back in May, Okta completed its acquisition of Auth0, an identity platform for application teams. That deal established Okta as one of the leading companies in the identity cloud industry. The company believes that it has a total addressable market of $80 billion, with many opportunities for growing its top line. Some methods include landing and expanding use cases in large organizations, expanding internationally, and partnering to increase its customer reach.
Tailwinds that persist
All three of the businesses above enjoy strong tailwinds that will not die down anytime soon. Each company has also invested money to improve its functionality and platform to provide its customers with better service and make them stickier. They should enjoy steady growth in revenue and market share, and their stock prices should also rise in tandem.