While 2020 and 2021 were record-setting years on Wall Street, 2022 was a severe disappointment for many growth stock investors. Assets like the Ark Innovation ETF that were previously high performers experienced huge downdrafts as people fled from riskier speculative assets to safer ones. But not all growth stocks got hammered.
Consider, for example, Coupang (CPNG 0.35%) and Wix.com (WIX -2.00%) -- both stocks are trading up by more than 25% in the last six months. Here's why you should buy these two breakout growth stocks now and hold them for a decade or more.
1. Wix.com: Website building for everyone
Wix.com started out as a simple website builder for individuals and small businesses. Over the last 10 years, its intuitive and easy-to-use design allowed the company to win market share from more complicated competitors like WordPress. More recently, it built tools for the entire web development market, targeting website-building agencies and online sellers to expand its customer base. As of the end of 2021, Wix.com reported around 6 million paying subscribers, up from less than a million in 2013.
Its website building and e-commerce platform model worked wonders during the early stages of the COVID-19 pandemic. As its business benefited from lockdowns and social distancing efforts, investors bid up Wix.com stock by as much as 500% compared to where it sat in late 2017, and its revenue grew by more than 30% year over year in the quarters in 2020 and early 2021. However, after a steep slide that began in early 2021, its shares are only up by around 68% over the last five years.
Wix's business growth slowed in 2022. Revenue only increased 10% year over year on a constant-currency basis last quarter, and free cash flow shifted from positive to negative. However, management said the company is still on track to hit its 2025 goal of generating $500 million in free cash flow, and it thinks it can accelerate revenue growth once the website-building industry gets back to its pre-COVID growth rate of 2% a year. Currently, Wix estimates that the industry is growing by less than 1% a year because some demand was pulled forward in 2020 and 2021.
With a market cap today of $5.11 billion, Wix would trade at a price-to-free cash flow of 10 if it hits its 2025 target. This would be a cheap earnings multiple, and given Wix's great track record of growth (its revenue increased by more than 2,000% since it went public in 2014), the stock is set up for great returns through 2030 and beyond.
2. Coupang: Bringing the Amazon.com model to South Korea
South Korean online retailer Coupang was one of the biggest IPOs of 2021. Its shares are down by about 70% from where they opened trading on the day the company went public, but are up by about 44% in the last six months.
Why has the stock turned around in spite of the bear market? Because of the impressive growth the company is putting up through its integrated e-commerce model. Coupang -- like Amazon.com in the United States -- built out not just an online website for buying goods but also the delivery and fulfillment infrastructure to get those packages to people's doors quickly. This infrastructure gives the company an advantage vs. the competition in South Korea, and it is the main reason its market share consistently grows each year.
Last quarter, Coupang's revenue grew 27% year over year on a constant-currency basis to $5.1 billion. This growth was driven by its active customer count growing by 7% to 18 million and its revenue per active customer growing by 19% year over year in constant currency to $329. Along with this growth came impressive margin expansion: Its gross margin hit 24.2% last quarter compared to 16.2% a year ago.
Right now, Coupang is still burning cash, with a negative free cash flow of over $700 million through the first nine months of this year. However, with $3 billion in cash on its balance sheet and rapidly expanding margins, I think Coupang is in a fine spot and is on track to become profitable within the next few years. With a market cap of $32 billion, over $20 billion in revenue, and a large runway to continue growing, I think Coupang could be a market-beating stock if you hold it for 10 or more years.
