Taking a buy-and-hold approach to the right growth stocks can be a path to life-changing returns. Consider that a $1,000 investment in e-commerce services provider Shopify made just five years ago would now be worth roughly $32,000.
With that kind of incredible performance in mind, a panel of Motley Fool contributors has identified three explosive growth stocks that stand out as great buys in the new year. Read on to see why they think that investing in these three companies will make you richer and happier in 2022 and beyond.
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This large-cap travel leader still offers huge upside
Keith Noonan: Airbnb's (ABNB -2.37%) success thus far has been nothing short of incredible. Founded by three friends in 2008, the company has gone on to become a leading player in the travel and hospitality space, and it currently sports a market capitalization of roughly $106 billion. As impressive as the short-term rental specialist's performance has been, it looks like the company's growth is just getting started.
With more than 4 million hosts currently listing their properties through the platform, the rental service offers an incredible variety of potential accommodations to choose from. Even better, these rentals often provide levels of comfort, convenience, and local connection that the traditional hotel and rental industry simply can't hope to match.
When the pandemic crushed the travel industry in 2020, Airbnb reduced its headcount and significantly cut back on marketing expenses. The company has since started ramping up hiring again, but it's a leaner, more effective beast in some respects, and the travel specialist managed to post its best-ever sales performance in the third quarter. The company's net income also surged roughly 280% year over year to reach $834 million, reinforcing the notion that the travel industry is recovering and that Airbnb is poised to post huge profits over the long term.
Admittedly, the emergence of the omicron coronavirus variant late in 2021 took some of the bloom off the business' incredible third-quarter results, and the stock is now down about 24% from its high. Even with lingering pandemic-related challenges creating some added uncertainty, I think there's a good chance that the passage of time will come to make Airbnb's current valuation look very cheap.
At the confluence of data and real-time need
Jason Hall: Data analytics has historically been what happens to data after you get it. At the end of some period of time, an organization runs a batch report, pulling data out of a database and running it through an analysis, generating reports or otherwise gleaning whatever useful information it can.
The problem is this happens after the fact, often far too late for an organization to have acted on information it was in possession of, making it a missed opportunity. That's why Confluent (CFLT -0.53%) exists. The company was founded to help organizations make the most of Apache Kafka, the leading open-source distributed event streaming platform, so they can make use of data in real time.
Why partner with Confluent to manage an open-source platform? Its three co-founders are the creators of Kafka, having developed it when they worked at LinkedIn to fill a real-world need no other product existed to address. They founded Confluent because few companies have the resources of expertise to go it alone, and their deep knowledge of Kafka, as its creators, was a powerful competitive advantage.
Confluent's IPO was in 2021, and management is putting the capital it raised to work. Over the past year, revenue is up 58%, but growth accelerated to 66% in the third quarter. Revenue for Confluent Cloud -- likely to be its biggest product in the future -- is up 175% over the past year, and surged 245% in the third quarter.
Just how big is the opportunity? With a $50 billion addressable market in 2021 expected to grow to $91 billion by 2025, Confluent's growth could be downright explosive from here.
The Trade Desk is riding a secular tailwind that's fueling growth
Parkev Tatevosian: The Trade Desk (TTD -6.23%) facilitates global advertising by empowering the buyers of digital ad space. Over the years, the company has been explosively growing revenue and profits. From 2015 to 2020, revenue increased from $114 million to $836 million. Similarly, operating income increased from $38 million to $114 million during the same time. The growth has continued so far in 2021. In the nine months ended Sept. 30, The Trade Desk has increased revenue by 55% from the same period in 2020.
According to GroupM, global advertising spending will increase by 22.5% in 2021 and reach $763 billion. What's more, spending on digital ads is growing to take a larger share of the overall market. Indeed, from 2019 to 2021, digital's share of general ad spend increased from 52.1% to 64.4%.
This trend is unlikely to reverse as consumers are spending more time online. It's not like folks are going back to reading physical copies of newspapers or canceling streaming subscriptions in favor of linear TV. Internet-connected versions of content are significantly more convenient, and more people are gravitating to that format over time. The Trade Desk will continue to benefit from that trend, and considering its relatively small share of the overall advertising market, it has several years of potential growth ahead.
The stock is not cheap, trading at a price-to-free cash flow multiple of 148. However, given the incredible revenue growth, consistent profitability, and industry trends, the price is justified by operating performance. For those reasons, The Trade Desk is one explosive stock investors can buy for 2022.
