As innovation continues to evolve at an astonishing pace, companies that lead the charge in new technological frontiers often provide the best opportunities for long-term growth investors.
Two such companies offer investors the chance to ride this wave of technological innovation and potentially generate significant returns -- Tesla (TSLA -3.55%) and Coinbase Global (COIN 2.01%).
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Necessary perspective for the EV leader
Tesla's recent earnings report was expected to be underwhelming as consumer spending dwindled due to higher interest rates. Simply put, people aren't buying as many cars. To try to combat this, the company lowered the cost of its cars six times this year. Despite a record number of deliveries, profit fell 17% from the previous year, causing the stock's price to decline 20% in April alone.
While many investors focus on the hit to Tesla's profit margin, it must be reiterated that the company is currently the only profitable electric vehicle (EV) maker in the world. In addition, the high-interest-rate market is a short-term problem, although it shouldn't be a cause for concern for long-term investors.
Despite a profit decline, Tesla continues to prove its business model is superior at producing and delivering vehicles. Based on the most recent earnings report, production jumped 44% from the same quarter last year to 440,808, and deliveries increased 36% to almost 423,000.
This type of production is unmatched in the industry, and based on long-term trends in consumer demand for EVs, this number will likely only increase as Tesla tries to keep pace with the growing market. Estimates call for global EV production to jump from 8.1 million units in 2022 to more than 45 million by 2030, and Tesla expects to remain the biggest producer. Chief Executive Officer Elon Musk is on record saying the company will produce 20 million vehicles per year by 2030.
So, here lies the real opportunity for investors. Tesla stock is down more than 55% from its November 2021 record, and its price-to-earnings (P/E) ratio is trading at just 45. At its peak, Tesla's P/E was more than 1,000.
Although high interest rates and price cuts might hurt in the short term, Tesla is the undisputed champion of EVs. Should markets find equilibrium in the coming years, Tesla could prove to be a favorite of high-growth investors.
An up-and-coming success story
Just as Tesla has become synonymous with EVs, Coinbase is establishing itself as the leader of the cryptocurrency industry. However, unlike the EV giant -- which has treated investors to some profits -- Coinbase stock has more or less been in a free fall since it debuted on the Nasdaq in November 2021.
At the time of its initial public offering, the cryptocurrency market was in the midst of a historic bull run and Coinbase's profits soared. But the success was short-lived. Just a few months later, a bear market enveloped the crypto economy and Coinbase's bottom line took a serious blow.
In an effort to shift away from its dependence on transaction fees, which are highly correlated to market conditions, Coinbase has developed an array of new revenue sources that produce profits even in bear markets.
Two of the main ways Coinbase has done this is by offering unique subscription plans and creating innovative crypto products for both retail and institutional investors. Based on the most recent earnings report, Coinbase's subscription and services now make up nearly half of total net revenue. Just a year ago, this number was 15%.
Coinbase is also cutting costs to levels not seen in more than two years. Total expenses in fourth-quarter 2022 were down 24% and have declined in four out of the last five quarters.
Perhaps the most intriguing development to come from Coinbase is its goal of becoming a household name and the go-to platform for all cryptocurrency needs -- not just in the U.S., but around the world.
In just the first few months of 2023, Coinbase introduced its own international derivatives exchange, which allows users to trade perpetual futures. Because this type of transaction accounted for more than 75% of all international crypto trading, this new product could prove to be lucrative. The company also debuted its highly profitable Coinbase One product in 34 additional countries, including Germany, the U.K., and Ireland.
In recognition of continued growth and adoption of cryptocurrencies, there is a serious case to be made for Coinbase to be part of every high-growth investor's portfolio. The strategy to prioritize its international presence, complemented by its proven resiliency and innovation, puts Coinbase on a trajectory to become the irrefutable leader of crypto.
With shares remaining nearly 85% below the all-time high, Coinbase could become a frontrunner of portfolios for years to come.
