It's tough to justify owning a stock forever unless it has characteristics that enable it to continue growing over the long term. You need to look for key attributes so that the stock deserves a place within your portfolio and you can hold it forever.
These include a strong competitive moat and market position that enable the company to garner more customers. There should also be a long growth runway in terms of a large addressable market or the potential to expand use cases. These companies should also have strong management that has the foresight to take advantage of emerging trends and evolve to stay ahead of competitors.
Here are three growth stocks that fulfill those criteria -- and that you can consider owning for the rest of your life.
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Adobe
Adobe (ADBE 0.87%) is a market leader in providing cloud software for organizations to create, edit, and amend documents, photos, and videos. Its recent fiscal 2023 first-quarter results were impressive, with the company reporting record revenue of $4.66 billion, up 9% year over year.
Subscription revenue made up the bulk of total revenue, at 94%, while Adobe reported a slightly lower net income because of a higher tax provision. Free cash flow came in strong at $1.6 billion for the quarter, and the business reported remaining performance obligations (RPOs) of $15.2 billion.
The company has just announced an enhancement to its customer experience management solution, Adobe Experience Cloud. Adobe will tap into its Sensei generative artificial intelligence (AI) to allow organizational teams to boost productivity and improve customization.
The software also works with Microsoft to generate and modify text-based queries and brings a client's data and content within one platform, the Adobe Experience Platform. Users can then leverage Adobe's rich and diverse data set to train the AI models to customize output for specific brands and glean insights into their clients.
This functionality will be integrated across a wide variety of enterprise software and rolled out to customers in due course. This upgrade represents an exciting step forward for Adobe as it seeks to tap into the power of AI to enhance its customers' experiences and make them stickier.
Netflix
Netflix (NFLX -0.63%) is one of the pioneers in the streaming TV space and has built up a strong and loyal following of subscribers over the years. The company spends millions of dollars every year to produce a wide variety of movies and TV shows that cater to a diverse audience. With Netflix taking up a viewing share of just 7% in the U.S. and 9% in the U.K., there exists a long runway for the company to capture a larger proportion of people who are watching linear television.
The business reported continued revenue growth for its fiscal 2023 first quarter, rising by 3.7% year over year to $8.2 billion. Global paid streaming membership also rose 4.9% year over year and 0.8% quarter over quarter to hit 232.5 million. Free cash flow came in at $2.1 billion for the quarter and was higher than in the previous four quarters combined.
Netflix is also starting to crack down on password sharing this year, as different households had been using the same account to access its platform. Though controversial, new data from analytics platform Antenna has shown that U.S. signups have hit a four-and-a-half-year high as households purchase an additional account for $7.99 per month.
The strong uptake speaks volumes about Netflix's popularity and the number of people who are hooked on the company's wide slate of movies and shows.
Okta
Okta (OKTA -0.69%) plays a crucial role in many large organizations, as the company provides a platform that offers secure access and authentication to any device or app. As more businesses go digital in the wake of the pandemic, Okta should see more demand for the management of access as organizations' systems become more complex and intertwined.
The company's numbers bear this out. Revenue for fiscal 2023, which ended Jan. 31, jumped 43% year over year to $1.86 billion, with subscription revenue making up 96.2% of the total. Billings improved by 24% year over year, and the business generated a positive free cash flow of $65 million.
This momentum has carried on into the first quarter of fiscal 2024, with a 25% year-over-year revenue increase to $518 million and RPOs rising 9% year over year to $2.94 billion. Free cash flow jumped to $124 million from $11 million in the prior year, and Okta enjoyed a free cash flow margin of 24%.
Okta has shown its ability to steadily acquire customers, with the total number climbing 14% year over year to 18,050. Customers are also spending more, as those with annual contract values exceeding $100,000 jumped 23% year over year to 4,080.
The company is working on improving its platform to reduce the time needed to detect and respond to malicious hacker attempts and to also launch its platform at a swifter pace to reduce the setup costs for its customers. Management estimates that the identity management sector offers an $80 billion total addressable market and that the company is currently just capturing a small segment of this market.
This suggests that Okta's growth runway remains significant and that investors have more to look forward to in the coming years.
