The S&P 500 has delivered a total return of about 14% in the first part of 2023 on the heels of a string of strong market days. Looking back over the trailing-five-year period, the market still delivered a total return of 70% to investors who stayed through the highs and lows. While investors who stayed with the market through that window were dealt painful market days, they've also been in position to benefit from the best ones.
If you're in a position to invest right now -- meaning that you have cash set aside for savings, to pay your bills, etc. -- here are two spectacular growth stocks with businesses that may be too good for long-term investors to pass up.
1. Shopify
Shopify (SHOP 0.28%) has dealt with a turbulent operating environment in recent quarters, but its position as one of the leading e-commerce companies in the world remained resilient. Nearly 30% of all e-commerce sites in the U.S. are built on Shopify's platform, as are roughly one-quarter of the top 1 million e-commerce sites globally.
The U.S. e-commerce market alone is worth upward of $1 trillion at the time of this writing, while estimates show this space could explode to a valuation of $1.6 trillion by the year 2027. In Shopify's first-quarter earnings call, management affirmed that the business commands a whopping 10% share of this lucrative market.
This is not the tale of a flailing business but one that had to adjust to a landscape that rapidly evolved since the pandemic. Shopify continued to steadily grow revenue, albeit at a slower pace from pandemic times. One of the biggest issues some investors had with the business has been its recent net losses, which were partly due to declines in its equity investments in a turbulent market. Improvements in this area helped to drive its bottom line back into profitability in the recent quarter.
Shopify has also taken aggressive actions to cut costs. It's enacted workforce reductions and recently sold its logistics business to its new preferred partner Flexport, allowing merchants continued access to seamless fulfillment processes without the overhead costs to Shopify.
Looking at the first three months of 2023, Shopify generated revenue of $1.5 billion, a healthy 25% bump from the prior-year period. The company also generated a profit of $68 million compared with a net loss of more than 20 times that amount in the same quarter in 2022. Shopify was also free-cash-flow positive to the tune of $86 million in the first quarter of 2023.
While it will take more than a single quarter to convince investors that Shopify may be heading back to greener pastures, the company's dominance in the e-commerce market, combined with recent operational changes, are welcome signs for the future. Brands of all sizes rely on Shopify to expand their presence both online and offline, and the growth of the e-commerce market as a whole is a distinct tailwind that the business is ideally positioned to benefit from. Long-term shareholders can benefit as well.
2. Pinterest
Pinterest (PINS 21.02%) is known for its image and video-sharing format, where users can look for inspiration on just about any theme or subject and create boards to save those "pins" for future reference. From fashion to travel to recipes to home decor, the endless supply of imagery lends itself to a platform designed for long periods of scrolling and user retention.
When a user logs onto Pinterest, more often than not, they're already viewing the platform as a bridge between their search for inspiration to a relevant product or service to purchase. According to the findings of a recent survey by the company, more than 50% of all Pinterest users actually look at the platform as a place to shop. This is also why Pinterest has proven to be such an effective platform for advertising both small businesses and large brands.
Users clicked through and saved 35% more shoppable pins in the first three months of 2023 than they did in the same period in the prior year. And Pinterest had a whopping 463 million monthly active users logging onto its platform in Q1, which was 7% more than one year ago and 60% more than four years ago.
It's been a difficult environment for ad spending, and these dynamics will take time to improve as many businesses remain wary of the economy. Pinterest continues to make strides to optimize ad offerings for brands while improving monetization capabilities.
Video pins are proving to be a highly effective form of advertising for Pinterest and the companies buying ad space on the platform. In fact, roughly 30% of Pinterest's revenue is derived from video content. Pinterest reported that the amount of video content on its platform surged 40% sequentially in Q1.
The company also inked a deal with well-known publisher Dotdash Meredith to build out this library of video content with its relevant brands like Better Homes & Gardens and Brides.
Pinterest started testing a new ad offering called Premier Spotlight in the quarter, a premium selection that allows brands to buy front-and-center ad real estate on the platform's search pages. One early adopter is none other than Coca-Cola. The digital ad market is on track to hit a valuation of about $680 billion this year.
Pinterest's unique design and layout continue to make it a popular value-adding choice for brands. The trajectory of the broader ad market also gives this business a lot of room to run moving forward. It may be a mistake for investors to count this growth stock out, although patience will likely continue to be warranted in the near term.
