Successful investing is not complicated. Buying shares of companies that consistently report growing revenue and improving profitability will put you on track to building lasting wealth. Market volatility can make stocks seem complicated, but there is a high correlation between stock performance and business performance over the long term.
Let's look at two businesses that have a consistent record of growth and have powerful tailwinds that can keep them growing for many years.
1. Microsoft
Microsoft (MSFT 1.66%) has a long record of growing revenue and profits, paying dividends, and delivering market-beating returns to shareholders. The software giant spent the last decade moving toward a lucrative subscription-based business model across its key operating segments of gaming, productivity software, and cloud services. This bolstered the company's annual free cash flow generation and makes the stock a safe holding for the long term.
Many businesses depend on Microsoft's software every day. This is why Microsoft still posted a 10% year-over-year increase in revenue last quarter despite tech layoffs and pockets of weakness in consumer spending. This is consistent with Microsoft's revenue growth over the last 10 years -- a decade that saw the stock price rise over 800%.
Microsoft also saw gains in its gaming business. Monthly active users hit a record in the fiscal third quarter ending in March. While its pending acquisition of Activision Blizzard would make it one of the largest video game producers in the world, the deal is still up in the air and may not get approval from regulators. Either way, Microsoft's Xbox and Windows gaming platforms have a bright future in an industry expected to reach $385 billion in revenue this year, according to Statista.
Perhaps the best reason to buy Microsoft is its booming cloud services business. Microsoft Azure is steadily gaining market share, with revenue up 27% year over year last quarter. Some of the world's largest businesses continue to shift their key workloads to the cloud, and they are choosing Microsoft. This pushed Azure's share of the $237 billion cloud infrastructure market from less than 15% in 2017 to 23%.
Providing essential software services is a highly profitable business, but most importantly, it leads to consistent annual revenue. Over the last four quarters, Microsoft generated $57 billion in free cash flow on $207 billion in revenue. These cash resources allow management to reinvest in growth while paying out a small quarterly dividend to shareholders, with the yield currently at 0.86%.
No matter what is going on with the economy, the resiliency of Microsoft's business makes it a great investment for the long haul.
2. The Trade Desk
If you want to go for higher returns, The Trade Desk (TTD 5.32%) would fit the bill. It's a leading advertising management platform and has already put together an impressive track record of explosive growth in recent years. Since 2015, revenue has grown over tenfold, with the stock price up over 2,000%.
The shift to digital advertising is fueling the company's growth, and the good news is this shift is still in the early innings. We can see this in the company's latest results, where The Trade Desk reported a robust 32% year-over-year increase in revenue in the fourth quarter. That's a bit slower than what it reported over a year ago, but it's still impressive to see an advertising platform generating that much growth in a weak ad market.
Management continues to see advertisers moving to connected TV platforms and retail media. The connected TV ad market is expected to double to $43 billion by 2026, according to Statista.
The Trade Desk is benefiting from the launch of new ad-supported streaming plans. Consumers are turning to more affordable subscription offerings in this environment, which is a near-term catalyst and stretches the company's growth opportunity over the long term.
It's also nice to see an innovative company delivering robust top-line growth while also remaining profitable on a free-cash-flow basis. The company generated $456 million of free cash flow on $1.5 billion of revenue over the last four quarters. The Trade Desk clearly has a very profitable business model. This points to a durable competitive advantage in being a more friendly alternative for brands to buy ad inventory than relying on Alphabet's Google, which has dominated online advertising in recent years.
These tailwinds should continue to power the company's financial results and deliver market-thumping returns to investors over the long haul.
