Randomly pick a stock out of the hundreds that trade on equity markets, and chances are pretty good that it's in the red for the year. It's been a struggle for Wall Street since 2022 kicked off, and with lingering economic issues like inflation, stocks might not have bottomed out yet. However, long-term investors shouldn't let this heightened volatility scare them away.
Downturns always present opportunities to buy great stocks on the low. And those who do so today will congratulate themselves in a decade. Plenty of stocks can turn $250,000 into $1,000,0000 -- a compound annual growth rate (CAGR) of 14.87% -- in the next 10 years. Two excellent candidates are Match Group (MTCH 1.36%) and PayPal (PYPL 1.19%).
1. Match Group
Online dating is an expanding industry, and it's easy to understand why. It allows people to connect with potential matches they otherwise might have never met. And one of the leading platforms in this field is Match Group. The company owns a portfolio of dating websites and apps, chief among them being Tinder. In fairness, Tinder and the rest of Match Group's portfolio are experiencing a bit of a slowdown; some may see those headwinds as severe obstacles to the company's ability to deliver solid returns in the next decade.
During the second quarter, Match Group's total revenue jumped by 12% year over year to $795 million. Match Group has recorded much better revenue growth rates in recent quarters. It owed this less-than-stellar performance in part to foreign exchange dynamics. However, there also seem to be some issues within the company. Match Group's new CEO, Bernard Kim, argued in his first letter to shareholders that Tinder has failed to capitalize on monetization opportunities due to poor execution.
Kim decided to shake up the management team at Tinder, a move that included letting go of its CEO, Renate Nyborg.
The internal problems and macroeconomic headwinds plaguing Tinder could mean things will get worse for Match Group before they get better. But there is also good news. Consider that during the second quarter, Match Group's total paying members rose by 10% year over year to 16.4 million. Revenue per payer increased by 3% year over year to $15.86. That's important since the more people are plugged into Match Group's network, the more it becomes attractive to future potential online daters.
That's the flywheel effect -- the value of service increasing as more people use it -- and it helps companies build a solid competitive advantage. Meanwhile, Match Group still has room to grow in the online dating market. Only 43% of single adults in the U.S. and Europe have tried a dating app. This metric is even lower (sometimes substantially so) in other parts of the world. There is enough whitespace here for Match Group to make headway while growing its revenue, profits, and stock price.
2. PayPal
Slowing revenue increases and lackluster user growth are just some of the issues plaguing PayPal recently, leading to its beating on the stock market. Naturally, keeping an eye on various headwinds affecting a company's performance is always essential. However, PayPal's problems are hardly enough to halt its long-term trajectory. First, some of the company's challenges were due to difficult year-over-year comparisons.
Business was booming for PayPal during the worst of the pandemic -- more than it otherwise would have -- and once economies reopened, a natural slowdown ensued. Second, PayPal is tapping into a significant long-term opportunity. The company's consumer penetration is, at most, in the mid-40% area, even in its largest markets. The volume of digital payments will only increase as the e-commerce industry grows.
And the more we switch to online platforms, the more there will be a need for companies like PayPal that offer both buyers and sellers a safe and secure way to handle online and in-person transactions. Of course, PayPal offers much more to both sides, including risk management for businesses to help protect them from fraud and a host of financial services to consumers, including a credit card through its peer-to-peer payment app, Venmo.
Third, PayPal is already a leader in this industry. It is the most accepted digital wallet among the 1,500 largest online retailers in North America and Europe. Note that PayPal also benefits from the network effect. The more retailers within its network, the more that will attract consumers, and vice-versa. During the second quarter, PayPal's total payment volume of $339.8 billion increased by 9% compared to the year-ago period.
Revenue jumped by 9% year over year to $6.8 billion, while net active accounts climbed by 6% year over year to 429 million. These metrics -- especially total payment volume and net active accounts -- are above what they were before the pandemic for PayPal. The company has made some progress, and it will continue doing so. In the meantime, opportunistic investors would do well to pick up PayPal's shares while they are down.
The long-term view
Can Match Group and PayPal deliver a CAGR of nearly 15% through 2032? Both companies display some of the necessary conditions to provide long-term market-beating returns of this kind to their shareholders. Online dating and digital payments are on an upward trajectory, an essential factor that will help fuel the growth of Match Group and PayPal.
Both companies are among the leaders and the best-known in their industries -- name recognition counts for something. That points to Match Group and PayPal being able to attract more users (i.e., higher revenue), and their existing moats will strengthen as they grow their respective ecosystems. It's impossible to foresee every detail of what will transpire in the next decade, but Match Group and PayPal will almost certainly be substantially up from their current level in 10 years.
