Holding a stock for 10 years or more allow a businesses enough time to reach maturity, where the bulk of profits and cash flow is earned. That way, investors' returns are more strongly connected to how a business performs than the day-to-day fluctuations in market prices that can result from many factors unrelated to the company's fundamental prospects.
Shopify (SHOP -2.02%) and The Trade Desk (TTD -0.50%) are two excellent tech stocks you can buy and hold for the next decade and each is still in the fast-growing stage of the business cycle. Let's look at each company more closely.
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1. The Trade Desk
The Trade Desk operates a buy-side advertising platform where marketers create, manage, and optimize digital advertising campaigns. The company is proliferating and capitalizing on the tailwind of increased ad spending moving online.
From 2014 to 2021, The Trade Desk has increased revenue from $45 million to $1.2 billion. The nearly thirtyfold expansion highlights the superiority of digital advertising over linear modes. Consider that most forms of online advertising offer marketers the ability to measure the return on that investment.
Marketers can get relatively precise figures, whether that measurement is in views, clicks, or purchases. That's in stark contrast to linear forms where figures are more or less approximated with wide margins of error. How many people saw your billboard in Los Angeles? that figure can be more burdensome to calculate than the actionable information it provides.
It's no surprise that marketers are increasingly moving their spending to digital channels. In 2021, 64.4% of advertising went to digital media, up from 52.1% in 2019. Given the advantages, that figure can keep growing, and The Trade Desk is in an excellent position to benefit from the tailwind.
To make it even more attractive, The Trade Desk is profitable on the bottom line, earning net profits of $138 million in 2021 on revenue of $1.2 billion. If it keeps growing revenue at its rate in the last several years, profits will likely expand since the business is not built on a high degree of variable costs.
The stock is not cheap, trading at a forward price-to-earnings (P/E) ratio of 88 and a price-to-free-cash-flow (P/FCF) ratio of 128. However, the business's proliferation means that it can grow into its valuation over several years.
2. Shopify
Shopify enables entrepreneurs to establish an online presence. The company was already growing revenue and customers briskly, and the onset of the pandemic put fuel on the fire. Shopify has expanded from $24 million in revenue in 2012 to $4.6 billion in 2021.
It's no secret that consumers are increasingly spending more online. That's understandable. You can shop online 24 hours a day in the comfort of your home, and the items will be delivered to your doorstep. More than ever, a business needs to have a website or app that consumers can visit. That's where Shopify thrives. It offers plans starting from $29 per month, rising as high as $2,000 per month for large businesses. Shopify estimates that the total addressable market for small businesses alone is $160 billion.
At $4.6 billion in revenue in 2021, Shopify has captured a decent share of the market, but it has far more room to grow based on the estimated total addressable market. Moreover, the market size is likely to expand as the share of consumer spending moving online increases.
Like The Trade Desk, Shopify stock is not cheap. It is trading at a P/E ratio of 182 and P/FCF ratio of 185. Therefore, it is prudent that investors interested in buying Shopify plan on holding the stock for the next decade.
