Even as the stock market has continued to take investors for a wild ride in the first several months of 2023, compelling businesses with durable growth stories remain. While it takes patience and fortitude to stay with great companies throughout the market's ups and downs, investors who do so can benefit from the best days of the market while beating out the average investor who has tried to dip in and out or stayed on the sidelines too long.
Here are two explosive growth stocks to consider buying and holding on to for at least a decade.
1. Pinterest
Pinterest (PINS 0.43%) boasts a visually appealing layout that represents a golden opportunity for companies of all sizes and across a range of sectors to advertise to users. One of the most compelling aspects of Pinterest's platform is that it doesn't appear like an advertising vehicle at first glance. People use the platform to search for everything from inspiration about recipes to travel to personal affirmations, and are met with an array of eye-catching and aesthetically pleasing images and videos (known as "pins") when they do so.
However, among these photos and videos are clever advertisements that often look like ordinary pins, but actually market various products and services from the brands that pay Pinterest to advertise on its platform. Internal Pinterest studies have shown that its ads deliver more than double the return on ad spend for retail brands than the typical social media platform. And with a monthly active user base of 450 million individuals as of the end of 2022, there's a vast and growing audience for brands to target with their advertising spend.
Revenue and monthly active user (MAUs) figures have had to contend with poor year-over-year comparisons in recent quarterly reports. However, it's worth noting that between the final quarter of 2019 and the final quarter of 2022, Pinterest's revenue increased at a healthy compound annual growth rate of about 30%, while its monthly active user base accelerated by 10%.
Mobile app users continue to drive the lion's share of Pinterest's growth, with management noting in the fourth-quarter earnings call that this cohort of users comprises more than 80% of the company's total revenue and impressions. Pinterest's mobile app MAUs jumped 14% year over year in the final three months of 2022 alone. In the most recent quarter, the first three months of 2023, Pinterest reported that total monthly active users hit 463 million, up 7% year-over-year. This helped drive revenue up 5% from the year-ago period to $603 million. While the company reported a net loss of $209 million on a GAAP basis, this was largely due to the costs associated with restructuring charges during the quarter. On a non-GAAP basis, earnings totaled $58 million, while adjusted EBITDA came to $27 million.
The company's growth in monthly and weekly active users, along with the fact that sessions continue to accelerate faster than users, all boils down to the stickiness of the platform and its ability to retain user interest for long periods of time. This is fantastic news for companies looking to advertise on Pinterest, and as the trajectory of ad spending recovers, the company and its investors can reap the rewards.
2. Upstart
Upstart (UPST -0.58%) has seen its shares jump about 8% since the start of 2023, even as shares are trading down by about 80% over the trailing 12 months. There's no denying that it has been a difficult time for companies with any measure of exposure to the lending industry. Upstart operates as a middleman between consumers and lenders, using its artificial-intelligence-fueled platform to assess consumer creditworthiness and make better lending decisions. Given the current economic landscape, it should come as no surprise that loan approvals are down, loan funding is down, and revenue has dropped.
Still, it's not all doom and gloom on the horizon. Upstart saw its network of credit union and bank partners jump 120% year over year as of the end of 2022. And so many auto dealers joined the bandwagon to use its auto retail product that Upstart finished out the year with 90% more dealerships in its network than at the end of 2021.
CEO Dave Girouard noted in the 2022 earnings call that "banks and credit unions recognize and appreciate a fundamental secular change in technology when they see it." He added: "These partners are starting cautiously with us, but they represent a significant expansion of potential lending capacity on the Upstart platform once there's a bit more clarity on the direction of the economy."
Companies like Mercedes Benz and Acura are adopting Upstart's car-buying software, which includes tools that can help people complete the car buying process 100% online, from applying for a loan to signing contracts. When borrowers are given the option to apply for an Upstart loan with a participating auto dealer, internal data shows that they do so about 42% of the time. Meanwhile, the final three months of 2022 saw Upstart reach the point where one-third of all auto retail loans are completely automated. And 82% of all loans processed on Upstart's platform are now fully automated, so there's no human element involved at all.
However, Upstart has work to do to get back to profitability. It's also carrying far more loans than average on its balance sheet right now, as institutional partners are less inclined to part with their capital in the current interest rate environment. But the power of its underlying platform, and the growth that's continuing to drive in terms of both borrower adoption and the rate of banks and credit unions flocking to its platform, could be compelling for some investors. Even a small position in this fintech stock may be worth considering given its current trading price.
