To be classified as a growth stock, a company should be developing new products or services that help it gain share in existing markets, enter new markets, or create entirely new ones. These characteristics often lead to increased earnings growth rates, providing investors a path to generate substantial returns over the long term as products and markets evolve.
There are plenty of growth stocks out there today, but only some have as clear of a path to long-term success as Coinbase Global (COIN 5.68%) and Tesla (TSLA -1.11%). With their embrace of innovation and expanding business models, the future is bright for these two companies. Let's dive deeper to see why Tesla and Coinbase should belong in every growth investor's portfolio.
Image source: Getty Images.
Leading the crypto revolution
It's no secret that Coinbase's success is closely tied to the health of the cryptocurrency market. So when crypto fell into a bear market, Coinbase's profits took a severe hit. At its lowest point, Coinbase posted a colossal $1 billion loss in the second quarter of 2022, but much has changed since the depths of the most recent crypto winter.
One of the main reasons Coinbase incurred such heavy losses was its reliance upon transaction fees as its primary source of revenue. At one point making up more than 90% of total revenue, when crypto prices plummeted and trading activity dried up, Coinbase's concentrated revenue model posed a serious threat to its future success.
But during the crypto winter, Coinbase used the downtime to rebuild and diversify. Today, the company generates just 53% of revenue from transaction fees as its innovative Subscription and Services product suite continues to grow.
Comprised of staking rewards, custodial fees, and earnings derived from its partnership with the issuer of USDC, a stablecoin pegged to the U.S. dollar, Subscriptions and Services is just one part of Coinbase's revitalization. In the last year, Coinbase launched its own blockchain, implemented an international expansion strategy, and released new derivative products for retail and institutional investors. Add in the fact that expenses are down nearly one-third from last year, and Coinbase is now just $2 million away from turning a profit.
With its revamped revenue model and cost-cutting measures, Coinbase is better prepared to mitigate the short-term volatility that often occurs in crypto. However, its long-term success is even more promising as the cryptocurrency market is projected to grow at a compound annual growth rate of 30% over the next five years.
For investors, Coinbase offers a clear and easy choice. Its resilience during the crypto winter should provide investors with confidence that it can navigate future uncertainties, while its diversified revenue model should generate healthy returns as crypto legitimization progresses.
A true company of the future
It's no wonder that Tesla is one of the first companies that investors might think of when considering long-term growth opportunities. With its stronghold on the electric vehicle (EV) industry and growing trends in EV adoption, the company offers investors seeking long-term growth an excellent opportunity. Yet, while Tesla's position at the top of the EV market will likely continue well into the future, its most lucrative potential might actually come from other endeavors.
One of those is autonomous driving. Tesla's pursuit of eradicating drivers has been in the works for quite a while, but recent advancements hint that the fateful day might be closer than ever. While progress remains until it reaches the coveted Level 4 or 5 of autonomy, once Tesla does, it will not only change how we travel but also its revenue. Hoping to launch a robotaxi fleet, CEO Elon Musk believes autonomous driving is the catalyst that will send Tesla to a $10 trillion valuation.
While Musk is no stranger to wishful thinking and optimistic predictions, he isn't alone in this belief. A report from Ark Invest estimates that the successful development of autonomy and the launch of a robotaxi fleet could generate up to $600 billion in additional revenue, a significant increase from the company's yearly revenue of nearly $100 billion today.
Tesla's EV success and the potential impact of robotaxis make it a promising long-term growth option. However, the company's prospects become even more exciting when considering the development of its humanoid robot, Optimus, and its supercomputer, Dojo. With its position at the forefront of innovative technologies such as artificial intelligence and robotics, Tesla is one of the few companies that offer investors exposure to the most thrilling advancements of tomorrow.
