Investors who bought and held stocks like Amazon, Apple, and Alphabet have been rewarded handsomely over the years. In fact, $10,000 invested in any one of them 20 years ago would have resulted in more than $400,000 today.

But with all those tech giants now reaching trillions of dollars in market cap each, it can be tough to imagine those kinds of returns continuing. Instead, long-term investors may want to look for something a little smaller. Match Group (MTCH 0.83%) and Spotify (SPOT -0.31%) are two tech-focused companies that fit that bill.

Match Group

Match Group is the world's largest online dating company. Led by its flagship app Tinder, Match Group is home to dozens of digital properties such as Hinge, Match.com, OkCupid, and plenty more. 

Although Match Group certainly deserves credit for its growth, it has also been in the right place at the right time. Online dating has been a booming category over the last two decades. Today, it's estimated that roughly 40% of heterosexual couples in the United States meet online, which is roughly double the number from 15 years ago.

Unsurprisingly, this consistent wave of demand has led to strong sales growth for Match Group. In the most recent fiscal year, the company generated $3.2 billion in revenue, or roughly triple its 2015 revenue figure of roughly $1 billion. But it's not just the sales growth that should have investors excited. Match Group's operating cash flow as a percentage of sales also improved over the years, from 19% in 2014 to 30% in 2022 (excluding a one-time charge from a litigation settlement). 

Much of this improvement in profitability is thanks to Match Group's network effect. As more and more daters join apps like Tinder or Hinge, the app becomes more valuable for the next potential user. In other words, since Tinder and Hinge have gotten so large, Match Group has still been able to grow while spending less on marketing, since the platform attracts users on its own. This can be seen in the financial statements as well. Match Group was spending 38% of its revenue on sales and marketing in 2014, whereas last year the company spent only 17%. 

At Match Group's current enterprise value (market cap plus net debt) of $15.5 billion, the stock is valued at about 19 times management's current year guidance of $800 million in free cash flow. That strikes me as a reasonable price tag for the leader within the growing online dating category.

Spotify

Home to 515 million monthly active users, Spotify is the largest audio streaming platform globally. While most people know Spotify for being the pioneer in music streaming, the company is also investing heavily to incorporate other forms of audio into its platform, like podcasts and audiobooks.

Today, Spotify generates more than $10 billion a year in highly recurring subscription-based revenue, which is more than double the amount it was generating just five years ago. Yet, despite the strong growth, investors don't seem to appreciate the business nearly as much as most of Spotify's tech peers. This is likely because Spotify is contractually obligated to pay out the majority of its subscription revenue to music rights holders, most notably the major music labels. This leaves Spotify's gross profit margins at just 25%, which is far below the industry average.

However, Spotify has some levers it can pull to juice that profit. For starters, the company seems to be in the process of renegotiating a more favorable contract with the labels. While it's impossible to know exactly how the revenue splits will change, it seems highly likely that it would benefit Spotify.

In fact, Spotify is the only major music streaming company in the U.S. that hasn't raised the price of its individual subscription at all, likely because it's holding out for better terms. Spotify's CEO Daniel Ek made this fairly clear in a recent tweet: "We offer an amazing value-to-price ratio. And it has increased over the last few years. Bodes well if/when we raise prices." 

But there are some other ways to improve profit margins as well. While most people see Spotify as a listening destination for consumers, it's also an extremely important distribution point for creators, and Spotify continues to roll out new margin-enhancing tools to help them. For example, Spotify's two-sided marketplace allows artists to pay for features like higher priority in discovery mode or for "marquee" ads which pop up when certain listeners open the app. 

Last year, Ek stated that he thought Spotify could have a 20% operating margin over the long term. Even if the company only reaches half of that, it means Spotify would be generating $1.3 billion a year in operating profit based on its last 12-month revenues. At Spotify's current enterprise value of about $29 billion, I believe investors are getting an attractive price, given that Spotify has compounded revenues at 22% annually for the last six years and isn't showing any signs of slowing down.