I often find myself reflecting on the game-changing power of innovation. The companies that dare to venture into the unknown, to disrupt the status quo, and to paint the future with bold strokes of ingenuity -- those are the ones that tend to earn my admiration. Today, I'd like to show you two companies that have reached that level by dint of their visionary business plans and ambitious long-term goals.
These companies are not just participants in the technological revolution. They are the leaders, the pathfinders in the wilderness, the very catalysts of upcoming and ongoing sea changes.
First, let me remind you that investing in innovation is neither a sprint nor a get-rich-quick scheme. It's more of a marathon, like every serious investment strategy. Successful investing requires patience, foresight, and a willingness to embrace the unfamiliar -- especially when you're focusing on the game breakers of tomorrow. Always in motion is the future, as Yoda said, and even the most vigorous analysis will run into unexpected complications and get it wrong sometimes.
But that shouldn't stop you from doing your homework on promising innovators. It's about seeing the potential in a seed before it has even broken through the soil.
Now, let's turn to two pioneering companies that are not just adapting to change but are the architects of it. To borrow a phrase from Motley Fool history, these growth-hungry rule breakers are poised to become rule makers in the long run.
Roku gleefully disrupts traditional broadcasting
Digital streaming continues to disrupt the entertainment industry. Cord-cutting is an unstoppable reality. There are many ways to invest in this global sea change, but Roku (ROKU -1.58%) looks like the best idea of the bunch.
In fact, I would argue that Roku is the most promising long-term investment in today's market.
Sure, you can invest in the cord-cutting trend from the content angle. But then you're picking winners in a market-grabbing fight with several established leaders and even more hopeful upstarts. Roku's content-agnostic streaming platform wins as long as streaming continues to grow. Let me tell you, there are many chapters left in this growth story.
Even the most mature, sophisticated, and saturated media markets in the world still see consumers spending two-thirds of their video entertainment viewing on old-school alternatives like broadcast and cable:
Image source: Netflix.
And that's not all. Roku relies on ad sales in large part, and ad buyers have been slow to move into digital advertising so far. Here's how Roku CFO Steve Louden explained the situation at an investor conference last week:
For us, the biggest thing is to continue to drive share of wallet for the advertisers over to streaming and over to Roku, in particular. 50-plus percent of the viewership in the U.S. is now streaming-based, but less than 25% of the advertising budgets have moved over. And that's a massive gap, and that's also a massive future opportunity as more of that comes over.
So every year, more of a mix comes over to streaming, but it's way behind the viewership. So that's the number one lever we can do, which is pull more budgets in, and we've been doing that each year. It is painfully lagging the viewership, but it will eventually have to rightsize itself.
Many investors have picked up on the lagging ad sales, which is why Roku's stock price is so incredibly low these days. Shares are changing hands at 2.6 times Roku's trailing sales, with share prices standing 43% lower year over year and 88% below the all-time highs in the summer of 2021.
The market reaction to slow ad sales makes sense, but it also creates a massive buying opportunity. Ad sales should recover broadly when the inflation-based downturn ends. Then, the cost-effective nature of highly targeted ads will surely continue to move marketing budgets over to the digital ad space. And Roku stands ready to welcome that influx of ad spending with an open wallet.
Roku is an innovator on many levels. The company provides user-friendly experiences for the consumer, a pinpoint-targeted marketing platform for ad buyers, and a robust technical platform for content studios. For us investors, that adds up to a high-octane growth stock trading at bargain-bin share prices.
Fiverr's gig economy and the future of work
If you're searching for "the next big thing," it's hard to find a grander ambition than disrupting the job market. That's what Fiverr International (FVRR -1.46%) does.
As a pioneer in the gig economy, Fiverr makes freelancing look like a serious career alternative. From the other side of the same equation, Fiverr's service marketplace helps businesses of all sizes find the services they need when they need them, and at a negotiable rate.
Fiverr is both a first mover and a firmly established leader in this field, but the innovative ambition doesn't stop there. The company offers project management tools for businesses, e-learning services for freelancers, and a collaboration platform called Fiverr Studios that encourages teamwork across groups of independent freelancers.
These days, some investors see artificial intelligence (AI) as a threat to Fiverr's business, and the stock price has plunged 40% lower since OpenAI's ChatGPT system made a splash in February.
But then, you're forgetting that generative AI is only as good as the queries it responds to. Garbage in, garbage out is still a thing, and Fiverr is happy to hook you up with freelancers that can make the most of today's and tomorrow's AI systems. So Fiverr empowers freelancers, helps businesses do what they do, and is positioned to benefit from the purported AI threat.
Innovators are often misunderstood in the beginning, setting early investors up for tremendous gains in the long run. Fiverr is another great example of this money-making imbalance, just like Roku.
