Popular cryptocurrency Shiba Inu (SHIB -2.22%) might be flying high right now, but we've seen this movie before. Its 73,000,000% rise in price this year was enough to make you a millionaire for just a $2 investment on Jan. 1, but history suggests those who take the plunge now could face significant losses instead.
Shiba Inu has a market capitalization (valuation) of $33 billion at the moment, slightly smaller than that of meme-coin trailblazer Dogecoin. Dogecoin was famously promoted by social media royalty, including Tesla CEO Elon Musk, but eventually its lack of adoption as a payment mechanism resulted in a 76% collapse in price -- and it still hasn't come close to reclaiming its all-time highs.
Globally, a mere 112 small businesses accept Shiba Inu as payment for their products and services, with 40% of them being in the cryptocurrency industry. It's simply not enough to incentivize consumers to buy and hold the token because they've got nowhere to spend it, and therefore it remains nothing more than a vehicle for speculation -- potentially dooming it to the same collapse as Dogecoin.
In the long run, investors might be better off focusing their attention on high-quality stocks instead. Our Motley Fool contributors think Affirm Holdings (AFRM -2.08%), The Trade Desk (TTD 3.35%), and DigitalOcean Holdings (DOCN 0.95%) are three tech disruptors with enormous growth potential. Here's why.
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Young shoppers love buy now, pay later
Anthony Di Pizio (Affirm Holdings): With a fresh twist on installment-based lending, tech companies like Affirm are capturing the wallets of young people. The concept is formally known as buy now, pay later (BNPL), and it's a proven credit card killer; so much so that some of the world's leading banks and payment companies have developed their own versions of it.
Affirm works by integrating with the online checkout of its merchant partners, offering customers the opportunity to finance their purchases. Affirm then deals directly with the customer for repayment of the loan, meaning the merchant gets its money up front with zero credit risk. In exchange, Affirm earns an interest rate of between 0% and 30% per year, depending on the purchaser's creditworthiness.
Since hitting a low of $48 in May this year, Affirm's stock has more than tripled. The reason is a blockbuster deal with e-commerce giant Amazon, which will gradually place Affirm as a payment option at the checkout for its customers. It follows on from an existing agreement the company has with Shopify, and between these two arrangements, Affirm is potentially set to access over 300 million new customers.
Its market opportunity could explode from $8.3 billion in gross merchandise value (GMV) in fiscal 2021, to over $600 billion per year as the deals ramp up -- a potential 7,000% increase. Investors are so impressed that they've pushed Affirm to a market capitalization of $32 billion, surpassing previous global BNPL leader Afterpay, which was recently acquired by payment powerhouse Square for $29 billion.
Affirm has a customer base and market opportunity that Shiba Inu will probably never attain, and that makes it a much better bet over the long term.
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The adtech pioneer
Jamie Louko (The Trade Desk): The Trade Desk has become the market leader on the buy side of the online advertising market -- representing advertisers looking to buy ad space. The company has flown past plenty of competition to become one of the industry leaders, according to Gartner's Magic Quadrant, and this has resulted in stellar financial performance. Third-quarter 2021 revenue increased 39% to $301 million, driven by less than 5% churn. This resulted in net income growth of 44% to nearly $60 million.
The primary risk that has battered The Trade Desk in 2021 is the risk of cookies being removed from iOS devices from Apple and Alphabet's Google. Cookies are primarily where adtech companies like The Trade Desk and sell-side platforms like Magnite get data to place ads efficiently. However, The Trade Desk has been working on a new solution -- Unified ID 2.0 -- that provides privacy while obtaining data for efficient targeted advertising. The solution has started to gain broad acceptance from the industry, mitigating this major risk for the company.
With this major risk showing signs of becoming less important to The Trade Desk, the company could soar. Being the pioneer of this new solution, The Trade Desk has plenty of room to further itself from the competition. The company jumped nearly 30% after it reported its Q3 earnings, but I think this could continue for many years, much longer than the run that Shiba Inu might have.
Image source: Getty Images.
Cloud computing made simple
Trevor Jennewine (DigitalOcean Holdings): Cloud vendors like Amazon and Microsoft offer a robust portfolio of infrastructure and platform services, ranging from compute and storage to machine learning engines and video game development tools. However, those products are typically tailored to the needs of large enterprises, making them too complex for small- and medium-sized businesses (SMBs) or individual developers. That's where DigitalOcean sees its opportunity.
The company simplifies cloud computing. Its click-and-go user interface helps clients quickly build applications and deploy solutions, without any formalized training. DigitalOcean also offers 24/7 technical support free of charge, and it bills clients based on consumption of resources, a very transparent pricing model.
Those qualities differentiate the company from its rivals, and that advantage has translated into demand. In the third quarter, total customers jumped 7% to 598,000. Revenue rose to $111 million, as top-line growth accelerated to 37%. And on the bottom line, the company generated positive free cash flow of $11 million over that past 12 months, meaning its business is no longer burning money.
Going forward, the future looks even brighter. DigitalOcean posted a net retention rate of 116% in the most recent quarter, indicating a 16% uptick in average customer spend. But more importantly, that figure is above the 113% retention rate last quarter and well above the 104% retention rate posted last year, meaning DigitalOcean's cloud platform is getting stickier.
On that note, management puts its addressable market at $116 billion by 2024, leaving DigitalOcean with plenty of room to grow. That's why this stock is a better buy than Shiba Inu.
