Few stocks have performed as well as Tesla (TSLA 0.27%) over the past decade. With fervent investor optimism and rapid top-line growth, the electric vehicle (EV) manufacturer now has a market cap north of $1 trillion, making it one of the most valuable companies in the world.
As investors try to find the next wave of potential market-beating stocks, it can be helpful to look back at the recipe for a stock like Tesla, or any of the technology giants, to reach such high market values.
To reach a market capitalization of over $1 trillion this decade, there are three basic criteria a business needs:
- A revenue base already in the billions.
- A huge total addressable market (TAM).
- A track record of rapid, top-line growth.
1. Airbnb: Redefining travel
Airbnb is a travel marketplace where individuals can charge travelers to stay at properties they own. These properties can be anything from megamansions in Beverly Hills to treehouses in the rainforest of Australia; essentially, they allow people to stay at unique locations that are different from hotels. The idea was started by Brian Chesky and two others in 2008, and since then the platform has grown like gangbusters. Today, Airbnb has a market cap of $105 billion.
In 2021, the company had 300 million nights and experiences booked on the platform, up 56% year over year, as the world slowly recovered from the COVID-19 pandemic. However, nights booked are still down 8% from 2019, which shows that travel has still not recovered fully around the globe. Revenue came in at $6 billion in 2021, growing 77% year over year, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $1.6 billion. That gives the company a profit margin of 26.6% even while facing a headwind from the pandemic.
So Airbnb fits two of the three criteria with a large revenue base and strong top-line growth. But what about the TAM? The travel and tourism industry is one of the largest in the world, at $9.2 trillion worldwide in 2019 (the last two years have been lower because of the pandemic). Airbnb only serves a portion of the industry right now and has many competitors like hotels and other travel platforms like Booking.com and VRBO. But with so much consumer spending every year, Airbnb's annual revenue has a very high ceiling.
With a great track record of growth, a huge market opportunity, and high profit margins, I think Airbnb has a chance to hit a market cap of $1 trillion by 2030.
2. Coupang: The Amazon of South Korea
Coupang is an e-commerce company in South Korea with a similar business model to Amazon's. It has a wide selection of products along with its own fulfillment and delivery network, which gives it an advantage over competitors. This has allowed Coupang to rapidly gain e-commerce market share in Korea, growing from 7.4% in 2017 to 15.7% last year. Like Amazon, Coupang also has a premium subscription service called Rocket WOW that offers free shipping and special perks. It had 9 million members at the end of 2021.
Last year, Coupang generated $18.4 billion in revenue, up 54% year over year. As you can see from its market share numbers, it still has room to grow within its home market. Yet, to have a chance of becoming a trillion-dollar business, it will have to expand. Luckily, it already has a ton of initiatives to make this happen. First, on top of its e-commerce platform, it is launching an advertising business and streaming video (again, similar to Amazon) that will hopefully increase spending and profitability. Second, it is expanding outside traditional e-commerce into grocery and food delivery. Third, it has plans to expand outside of South Korea to Singapore, Taiwan, Japan, and potentially other regions in Southeast Asia.
Unlike Airbnb, Coupang has low margins, generating less than $3 billion in gross profit last year and a net loss. This means that it will likely have to have a much larger revenue base by 2030 to achieve a market cap of $1 trillion. But with close to $20 billion in revenue already, consistent market share gains, new business initiatives, and international expansion, I think Coupang can grow its top-line revenue at a high rate for a long time.
While it is clear that both Coupang and Airbnb have a chance to reach a market cap of $1 trillion, you should remember that there are risks with any investment. Nothing is guaranteed in the stock market, and if you buy either of these stocks, you are not guaranteed to have market-beating returns over the next decade. But right now, both companies show promise that is worthy of consideration.