Operating within different verticals of the technology sector, SoFi Technologies (SOFI -0.28%), Airbnb (ABNB -3.18%), MercadoLibre (MELI -1.01%), Global-e Online (GLBE -2.05%), and Cloudflare (NET -3.01%) are on a mission to dominate their respective niches.
By holding a basket of these five hypergrowth stocks forever, investors could kick-start their journey to becoming independently wealthy.
Let's explore what makes these companies perfect investments for investors thinking decades ahead.
1. SoFi Technologies
Through its three business segments -- lending, technology platform, and financial services -- SoFi has begun leveraging a powerful flywheel effect across its operations. The company's Technisys and Galileo platforms provide the rails that its financial services unit can run upon. Now paired with SoFi's recent bank charter designation in 2022, this vertical integration allowed it to launch a full suite of financial services to its members, operated in-house through its fintech solutions.
This is where things get interesting.
Now offering its 5.2 million loyal members high-yield checking and savings accounts, SoFi built an incredible $7.3 billion in deposits -- a figure that has grown from just $1 billion at the start of 2022. These deposits are hugely valuable to the company as they allow SoFi to fund its lending segment (personal, student, and home loans) with a cheaper source of capital.
Just how much cheaper?
At a recent investor conference, CFO Chris Lapointe stated that this low-cost funding from its deposit base would save $125 million annually -- an incredible figure compared to SoFi's sales of $1.6 billion over the last year. With this cheap funding, management expects to reach profitability by the fourth quarter of this year, making its price-to-sales (P/S) ratio of just 3.5 quite alluring.
2. Airbnb
Through its two-sided network, Airbnb's stays and experiences platform helps connect a seemingly ever-growing base of guests with hosts looking to rent out their property. During the last quarter, listings grew by 16% while traffic to its host landing page increased by 100% year over year, as new and potential hosts looked to profit from the immense demand on the company's platform.
Making the company's two-sided network all the more robust is that as of the fourth quarter of 2022, 36% of its current hosts originally started as guests. This surprisingly high figure shows the relative ease with which anyone can become a verified host and that the company's operations act as one of its best marketing tools for recruiting new hosts.
However, despite growing sales by 27% annually over the last five years and boasting a 31% free-cash-flow (FCF) margin, Airbnb trades at just 22 times FCF.
ABNB Price to Free Cash Flow data by YCharts
While some of this FCF is negated by stock-based compensation, Airbnb's early profitability and $10 billion cash hoard at such an early stage in its business life cycle give it the potential to dominate its industry for decades.
3. MercadoLibre
In much the same way SoFi aims to become a one-stop shop for its banking members in the U.S., MercadoLibre looks to be the go-to name for all things commerce in Latin America. Through its 46 million unique buyers on its marketplace or its 43 million active fintech users, MercadoLibre is bringing e-commerce and financial services to the area's largely underbanked population.
Despite recording over $10 billion in sales in 2022, the e-commerce giant is still in the early innings of its growth story. With less than 5% of its revenue coming from countries outside of Brazil, Argentina, and Mexico, MercadoLibre is nowhere near its full growth potential.
Furthermore, the company's total payment volume from transactions made outside its marketplaces grew by 120% in Q4. This highlights that the company's fintech solutions are rapidly becoming a part of its users' everyday lives and not just a payment option for e-commerce.
Generating steady FCF for over a decade, this e-commerce juggernaut-turned-fintech-upstart could power growth investors' portfolios for the long haul.
4. Global-e Online
Solving the innumerable complexities of cross-border e-commerce for its customers, Global-e Online has delivered incredible annualized sales growth of 84% over the last three years. Highlighting its impressive services, consider that entrepreneur enabler Shopify opted to partner with Global-e rather than be forced to develop a solution for going global.
Similarly, major brands like Walt Disney and Adidas use the company's services for portions of their international sales. Laser-focused on solving the complexities of different currencies, shipping options, localized pricing, and local taxes and payment options, Global-e allows merchants to sell globally without facing these headaches.
Sporting a dollar-based net retention (DBNR) ratio of 130% as of its last quarter, the company is quickly showing just how irreplaceable its services are. DBNR measures how much more an existing customer base spends from one year to the next, showing that once Global-e's customers buy in, they can't help but spend more over time.
Trading at 65 times FCF, the company is not cheap. But, sales growth of 80% in 2022 and the rollout of its partnership with Shopify could reel in this premium valuation over the long haul.
5. Cloudflare
Led by its mission to help build a better Internet, Cloudflare's network and cloud services help improve the security, performance, and reliability of its enterprise customers' operations. With virtually any internet-facing company poised to benefit from one of Cloudflare's solutions, the company has delivered 49% annualized revenue growth over the last five years.
Despite only being founded in 2010, the company already has over 2,000 customers spending over $100,000 annually -- a figure that grew by 44% from 2021 to 2022. Driven by a rush of enterprises needing to transition from outdated hardware and software to more flexible cloud and hybrid solutions today, Cloudflare has recorded five consecutive quarters of a DBNR rate above 122%.
While the company is not yet focused on profitability, it does generate positive cash from operations, most of which is reinvested into the business in the form of capital expenditures to improve the business.
Currently, the company trades at a daunting 22 times sales. However, patient investors should keep an eye on Cloudflare as its value and importance to today's increasingly connected world could prove to be much larger than the $21 billion market capitalization the company currently commands.
