Long-term compounding can make you wealthy. There is a caveat, however. Your money can only grow effectively if it is invested in the right companies that can enjoy many years, or even decades, of consistent growth. That's why it's important you select the right companies to park your money in and avoid the poorly managed ones.
So what types of attributes should you watch out for in these long-term compounders? First off, the company should provide a service that sees growing, long-term demand. Next, the business should occupy a dominant position in that industry to help it draw more customers. Finally, the company itself needs to demonstrate steady growth and a record of investing in its own future to keep ahead of its competitors.
Here are three stocks with these attributes that could multiply your money many times over in the coming years.
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Netflix
Netflix (NFLX -0.78%) continues to rule the roost as the market leader in streaming television. Although the company endured two consecutive quarters of membership decline, its latest third-quarter results show that membership numbers grew by roughly 2.5 million quarter over quarter and 4.5% year over year.
Netflix's numbers demonstrate why it's still the king of the hill. The streaming giant grew its revenue from $20.1 billion to $29.7 billion from 2020 to 2022 while its net income surged from $1.87 billion to $5.1 billion over the same period. For the first nine months of 2022, revenue rose 8.1% year over year, but net income dipped slightly by 1.6% year over year to $4.4 billion due to higher expenses.
Despite the slightly downbeat results, investors have reason to cheer. Netflix reported significantly higher engagement in both the U.K. and the U.S. compared with its competitors Walt Disney and Amazon, with both still purportedly making significant losses to build up their user base.
Furthermore, Netflix also generates 3 times the average revenue per subscriber compared with Disney, a metric the latter is unlikely to overtake anytime soon. Netflix also has a more than 10-year head start in original content programming compared with its peers, and has generated a sizable portfolio of TV series and movies in multiple languages across many different genres.
The company has also recently launched its ad-supported subscription plan in 12 markets that cumulatively account for over three-quarters of the global market, opening up a potential new source of recurring revenue. And Netflix is doubling down on games development, with 35 already on its service and another 55 in development. It's only been a year since its gaming launch, but the company hopes that this division can contribute meaningful revenue in the future.
CrowdStrike
When it comes to cybersecurity, many companies are unwilling to let their guard down as hacks and ransomware attacks have increased in frequency. This willingness to spend should benefit CrowdStrike (CRWD 1.64%), which hosts a secure cloud platform that deals with cloud security and identifies threats. The company taps into artificial intelligence analytics to improve its threat recognition ability to provide 24/7 all-around protection to its customers.
Its platform's effectiveness is reflected in its financial numbers, with revenue nearly tripling from $481.4 million in fiscal 2020 to $1.45 billion in 2022. For the first nine months of fiscal 2023, total revenue of $1.6 billion has already exceeded that of fiscal 2022, with 94% being subscription-based revenue.
What's more, CrowdStrike's subscription gross margin has also steadily risen from 57% in fiscal 2018 to 78% for the first nine months of 2023. Its free-cash-flow generation has also improved by leaps and bounds, jumping from a mere $12 million in fiscal 2020 to $442 million in fiscal 2022. The company has also grown its recurring subscription revenue from a mere $113 million in the third quarter of fiscal 2018 to $2.3 billion in just five years, demonstrating the cybersecurity company's impressive growth rate.
CrowdStrike also saw its customer base expand by 44% year over year to more than 21,000 for its current quarter, and has projected that its total addressable market could hit $158 billion by 2026, including new offerings that the company plans to launch.
Asana
Asana (ASAN 3.39%) assists its clients with workflow management by helping to streamline and organize tasks and business processes. One-third of its clients reported spending less time on emails while 4 in 10 carried out business processes more efficiently, thereby saving valuable time that can be used on other productive tasks.
Asana's success in helping its clients is also showing up in its financial numbers, with revenue climbing from $142.6 million in fiscal 2020 (ended Jan. 31) to $378.4 million in 2022. For the first nine months of fiscal 2023, revenue has continued its upward momentum, surging by 49% year over year to $397 million. Asana's business also boasts a very high gross margin of close to 90%, demonstrating the company's pricing power.
For fiscal 2022's third quarter, the company reported over 135,000 paying customers, up nearly 52% from the 89,000 customers two years ago. Not only are customer numbers rising, but they are also spending more as a whole. Customers spending more than $5,000 rose 32% year over year to 18,700 for the quarter, while those paying more than $100,000 surged 78% year over year to 493 over the same period.
Many organizations are seeking higher efficiency levels amid soaring inflation and are likely to adopt Asana's platform as a way to improve their employee productivity level. The company estimates that its total addressable market will more than double from $22.6 billion in 2020 to $50.7 billion by 2025 as companies seek out the most effective tools to compete.
