After Robinhood Markets exploded onto the investing scene during the past few years, the online trading platform provider went public in July 2021, buoyed by the strength of its young and growing user base. Thanks to the data it collects from its 22 million users, Robinhood holds an unusual degree of insight into the interests of the average retail investor. It shares some of that information by regularly updating a list of the 100 most commonly held investments in those traders' portfolios.
That list of holdings runs the gamut, from the intriguing to the questionable, with names that range from reopening plays and cannabis companies to meme stocks and penny stocks, and even some mega-caps.
Among the companies listed, three stocks stand out to me right now as offering a promising blend of discounted share prices, high sales growth, and massive brand power.
1. Zoom Video Communications
With its mission "to make communication frictionless," Zoom Video Communications (ZM 0.79%) is quickly becoming one of the most ubiquitous names in global business. According to Comparably, the Zoom brand ranks 11th and 40th among Millennials and Gen Zers, respectively, highlighting its immense mind-share among the younger generations. So not only is it popular among younger investors, it's popular among the young generally.
Best of all, Comparably also ranks Zoom 12th on its best global brands list -- ahead of names such as Microsoft, Disney, and Instagram. That incredible brand power is also reflected in Zoom's net promoter score (NPS) of +55 (on a rating scale that runs from -100 to +100).
This NPS is based on surveys that show that 69% of Zoom customers would recommend its product, while only 14% would not -- an impressive customer satisfaction ratio. Zoom has also posted 14 consecutive quarters of a dollar-based net expansion ratio above 130%, demonstrating that not only are existing customers staying with its products but expanding their usage at an incredible rate.
While revenue growth has decelerated from its pandemic-fueled highs, it still posted 35% growth year over year for the third quarter. Trading at roughly 26 times free cash flow with a market capitalization of $43 billion, this 35% sales growth looks attractively priced.
Any time a stock has a revenue growth rate higher than its price-to-free-cash-flow ratio, it catches my eye, as that represents the potential for cash-creating growth at a fair price.
As we look ahead, it will be pivotal for investors to monitor how well the new Zoom Phone service fares -- revenue from it grew by a triple-digit percentage year over year during the third quarter. This product could drive deeper loyalty among larger customers, and ultimately make Zoom's suite of communication offerings a one-stop-shop.
Airbnb (ABNB 1.97%), too, holds strong brand recognition among the younger generations, ranking 19th and 35th on Comparably's top brands among Millennials and Gen Zers, respectively (as well as its top-100 ranking with Robinhood investors). What is fascinating about the Gen Z ranking, in particular, is that only a fraction of those in its 10-to-25-year-old age range are old enough to book their own vacations -- yet Airbnb still has that strong brand awareness.
In addition, the company has positioned itself beautifully to grow alongside the rising trend of workplace flexibility. Speaking to this point in its third-quarter 2021 shareholder letter, CEO and founder Brian Chesky explained:
The world is undergoing a revolution in how we live and work. Technologies like Zoom make it possible to work from home. Airbnb makes it possible to work from any home. This newfound flexibility is bringing about a revolution in how we travel. Millions of people can now take more frequent trips, take longer trips, travel to more locations, and even live anywhere on Airbnb.
As the line between physical work locations and home offices and remote work continues to blur, experience-filled lifestyles should only continue to come to the forefront for younger generations.
Best of all for investors, this substantial brand power and unique positioning in the hospitality industry come with high cash-generating abilities. Over the last year, Airbnb generated $1.6 billion in free cash flow. At its current market cap of roughly $97 billion, that gives it a price-to-free-cash-flow ratio of 60.
While that ratio is somewhat high, the company's Q3 2021 revenue growth of 67% year over year hints at its potential as an investment that offers expansion at a fair price. Investors should watch its numbers in the long-term stays niche -- the company's fastest-growing segment -- as Airbnb looks to become a go-to business for connecting people with new places to live, not just to stay.
Rounding out our trio of well-branded tech stocks is Roblox (RBLX 1.35%), which lands at 11th place on Comparably's list of top brands among Gen Z. With a mission "to bring the world together through play," the Roblox gaming platform is rapidly becoming a significant force in the world of virtual reality.
At the helm of Roblox is co-founder and CEO David Baszucki, who holds an 88% approval rating on Glassdoor from his employees. Founder-led companies have historically produced outsize returns for investors, partly thanks to the benefit of these founders having more "skin in the game." (Indeed, all three companies covered in this article are all still founder-led.)
Perhaps thanks to Baszucki's vision, Roblox has stayed true to its creative roots and was recently ranked ninth on Fast Company's list of 50 most innovative companies. Best yet, the company receives a 4.3 out of 5-star rating on Glassdoor, highlighting a strong company culture that helps it attract the brightest developers in the industry.
Roblox generated $600 million in free cash flow over the last year, showing that the virtual goods exchanged on the platform can create real cash. It trades at roughly 62 times free cash flow. Moreover, after growing third-quarter revenue by 102% year over year, the company's cash-generating abilities look attractively priced.
Down by more than 50% from its 52-week highs, Roblox offers intriguing potential for long-term investors (whether they use Robinhood to trade stocks or not).