Long-time investors are no doubt familiar with the popular acronym FAANG, which represents some of the most disruptive, wealth-generating companies of the past decade. They are:
- Facebook, which has rebranded as Meta Platforms
- Google, which changed its name to Alphabet
Each of these five companies is the undisputed leader in its industry, revolutionizing social media, smartphones, e-commerce, streaming video, and internet search, respectively. As a result, investors have enjoyed life-changing gains of between 600% and 2,550% over the past 10 years -- even after the recent bear market carnage.
That said, the FAANG stocks are getting a little long in the tooth, which is "spooking" some investors. While they will still likely be market-beating investments for some time to come, forward-looking investors are beginning to seek out the next generation of disruptive stocks. With that in mind, let's consider the holdings of my newly created GHOST acronym and what makes them worth a look.
G is for Global-e Online
The growth rate of online sales has slowed dramatically from its early pandemic growth spurt, but e-commerce is here to stay and will only get bigger from here. The next generation of expansion will likely come from cross-border sales, and that's where Global-e Online (GLBE 1.92%) comes in.
The company addresses many of the challenges unique to international online retail, including currency exchange, customs and duties, inter-country regulatory compliance, foreign languages, and local payment methods. Global-e makes short work of these obstacles, allowing merchants to focus on selling their goods and services on a global scale.
In fact, its tools are so indispensable that e-commerce maven Shopify took a 9% stake in the company valued at more than $500 million while making Global-e Online the exclusive provider of cross-border services for its merchants. That's a huge vote of confidence from the world's largest provider of e-commerce tools.
Global-e's recent results put to bed the notion that e-commerce is dead. In the second quarter, revenue grew 52% year over year, fueled by gross merchandise volume (GMV) that surged 64%. It's worth noting that the company continues to generate losses as it scales its platform and scrambles to expand its customer base. However, its software-as-a-service (SaaS) model will help the company leverage each additional customer, shortening the time to profitability.
Given the gateway services it provides to enable worldwide digital sales, Global-e Online is a solid choice for the next-generation e-commerce winner.
H is for HubSpot
From its humble beginnings in inbound marketing, HubSpot (HUBS 2.33%) has evolved into a full-fledged customer relationship management (CRM) powerhouse. The company still helps businesses meet their customers where they are, rather than brow-beating them with traditional marketing. But HubSpot now offers an expanding ecosystem of tools designed to more effectively manage customer connections, including marketing, sales, and service solutions, as well as content management and payment tools.
History has shown that it's much more cost-effective to keep the customers you have rather than beating the bushes for new ones, and HubSpot helps businesses achieve that ambitious goal. But don't take my word for it, as its results tell the tale.
For the second quarter, HubSpot's total revenue grew 41% year over year in constant currency. While it isn't yet profitable on a generally accepted accounting principles (GAAP) basis, the company is generating strong and growing cash flow that shows that its lack of profits is the result of non-cash items like depreciation.
Furthermore, its customer count grew 25% year over year, with more than 60% of those customers adopting multiple products. It shouldn't be a surprise, then, that HubSpot was named a Leader by Gartner's Magic Quadrant for marketing automation platforms.
Effective customer management has never been more important, and HubSpot is a leading provider of next-generation tools for CRM.
O is for Okta
One of the most important business lessons to come out of the pandemic is the need for strong frontline defenses to prevent unauthorized access to workplace systems.
That's where Okta (OKTA -1.05%) (pronounced Ahk-tuh) comes in. The company is the leading provider of independent identity verification and access management solutions. Its cloud-based platform acts as a gateway, providing a secure entry portal for employees, customers, and even contractors. The company's zero-trust model ensures that only those with proper authorization can access business systems. This prevents the hacks, intrusions, and data breaches that far too often make headlines.
Business is booming. For the fiscal 2023 first quarter (ended April 30), revenue grew by 65% year over year, while its remaining performance obligations (RPO) -- unbilled but contractually obligated revenue -- grew by 43%. The current portion of RPO grew 57% year over year, which shows that its future growth opportunity is accelerating. Like HubSpot, Okta isn't yet profitable but generates strong free cash flow.
Okta has also been cited as the leading performer in the access management space by both Gartner and Forrester Research, making it the clear choice for companies everywhere.
The need to protect business systems and prevent unauthorized intrusions has never been more important, and Okta is well positioned to benefit from this trend.
S is for Snowflake
One of the biggest business trends in recent memory is the migration of data, applications, and systems to the cloud. This Herculean task is ongoing, but the benefits are undeniable. Not only can employees access these systems from anywhere, but assembling data in one place allows for more robust analysis.
That's where Snowflake (SNOW 2.13%) shines. Rather than simply storing business systems and data in the cloud, it helps companies gather, store, and analyze information, allowing them to extract more meaningful insights from the data they generate.
In its fiscal 2023 first quarter (ended April 30), revenue grew 85% year over year, fueled by product revenue that grew 84%. Perhaps more importantly, Snowflake's RPO surged 84%, which suggests its growth spurt will continue. Profitability is still elusive, but Snowflake generates strong free cash flow, suggesting that it's just a matter of time before the company generates meaningful profits.
At the same time, its impressive customer metrics illustrate Snowflake's impressive potential. Its client count grew 40%, but those spending $1 million or more over the preceding 12 months grew 98%. Furthermore, existing customers tend to spend more money over time, as evidenced by the company's net revenue retention rate of 174%.
Given its ability to provide valuable and actionable business insights, Snowflake is well positioned to continue to benefit from tailwinds provided by the digital transformation and the increasing adoption of cloud computing.
T is for The Trade Desk
The advertising landscape is in the midst of a paradigm shift, moving from traditional broadcast sources to their digital replacements. Furthermore, marketers want the biggest bang for their buck while avoiding the pitfalls inherent in walled gardens. This goal is further complicated by the impending death of ad-tracking cookies and the growing calls for stronger consumer privacy protections.
The Trade Desk (TTD 3.89%) is there to answer the call. The company's Unified ID 2.0 is the de facto replacement for cookies but doesn't use personally identifiable information, making it the clear choice for a growing number of marketers. Perhaps more importantly, its state-of-the-art platform puts advertisers front and center, allowing them to create ad campaigns that incorporate their own first-party customer data to better reach their target market.
In the second quarter -- even as other digital advertisers saw declining revenue -- The Trade Desk once again proved its mettle. The company's revenue grew 35% year over year on top of more than 100% growth in the prior-year period, while its adjusted net income climbed 13% and operating cash flow nearly tripled.
The Trade Desk has strong and growing relationships with all the top ad agencies and plenty of smaller ones, owing to its transparent pricing system and measurable results. It also boasts a customer retention rate of 95%, dating back more than eight years.
As the top dog in programmatic advertising and the ad-tech leader, The Trade Desk has the inside track to continue to disrupt the stodgy advertising industry.