For decades, investors have debated whether growth or value stocks are better. But it's a false dichotomy. Investors often wrongly assume that all fast-growing companies just burn cash to gain market share -- and only after a company reaches scale can it pull the profitability lever.
But it's just not true. Some companies are able to achieve the best of both worlds: growth and profitability. Admittedly, they're not easy to find, but here are four companies growing revenue north of 30% and simultaneously earning real net profits.
Let's take a closer look at cybersecurity specialist CrowdStrike (CRWD +1.71%), learning app Duolingo (DUOL +4.88%), fintech company Shift4 Payments (FOUR +1.06%), and app monetization platform AppLovin (APP +0.31%).
NASDAQ: CRWD
Key Data Points
1. CrowdStrike
CrowdStrike is a cloud-based cybersecurity platform offering enterprises a variety of products. It calls these products "modules" and it has more than 20 of them. Customers can start subscriptions out small and add on over time -- and that's exactly what's been happening.
At the end of its fiscal 2024 on Jan. 31, 64% of CrowdStrike's customers were using at least five of its available modules. Consider that only 62% of its customers used that many at the end of its fiscal 2023. In other words, the company's revenue is growing in part because customers are spending more money as they subscribe to additional modules.
Of course, CrowdStrike is winning new customers as well. This helped push its fiscal 2024 revenue over $3 billion, which was up 36% year over year -- a stellar growth rate. And if it hits the high end of management's guidance for its fiscal 2025, then it will grow revenue by 30% once again.
CrowdStrike stock is up about 150% in the past year, compared to about a 50% return for rival SentinelOne. SentinelOne's growth rate is higher, but investors may prefer CrowdStrike because it's more profitable by a mile. According to generally accepted accounting principles (GAAP), CrowdStrike had full-year net income of $89 million, compared with a GAAP loss of $339 million for SentinelOne.
NASDAQ: DUOL
Key Data Points
2. Duolingo
CrowdStrike is truly achieving the best of both worlds. But Duolingo sports a faster growth rate and a higher GAAP profit margin, which is worth investors' attention as well.
The bulk of Duolingo's business revolves around its language learning app, for which it offers both a free ad-supported tier and ad-free paid options. Maybe I'm surprised because I'm cheap. But the company ended 2023 with 6.6 million paid subscribers, which was a staggering 57% increase from the end of 2022.
Duolingo is growing at a stunning pace thanks to its ability to entice its 27 million daily active users to pay for a subscription. The company generated revenue of $531 million in 2023, which was up 44%. And it earned net income of $16 million, which was a 3% profit margin -- just a fractional percentage better than CrowdStrike's margin.
To be clear, both CrowdStrike and Duolingo are early in their journeys with profitability, so margins should get better with growth. On that note, Duolingo indeed expects to keep growing in the coming year. Management is guiding for full-year 2024 revenue of almost $718 million at the low end of its guidance, implying at least 35% year-over-year growth.
3. Shift4 Payments
OK, so Shift4Payments didn't technically grow by 30% in 2023. Its 29% top-line growth fell just short. But I'll give it a pass because its fourth-quarter revenue was up 31%, and it's guiding for over 30% growth in 2024 as well.
Shift4Payments is an often-overlooked fintech player, which is a shame considering its great growth and profitability. The company has a different focus than many of its peers: It focuses on winning huge venues such as Yankee Stadium and large events such as Cirque du Soleil. The company's payment volume is skyrocketing due to winning customers of this caliber.
Unlike some of its fintech peers, very little of Shift4Payments' revenue is subscription-based -- subscription revenue was 7% of gross revenue in 2023. That said, it is fast-growing, with 31% growth in the past year.
Trading at a price-to-sales ratio of about 2, Shift4Payments stock is cheap considering its growth. And indeed, it trades at a discount to some of its most comparable competitors, including Block and Toast.
FOUR PS Ratio data by YCharts
4. AppLovin
The three other stocks featured in this article all have positive returns over the past year. But they don't hold a candle to AppLovin's nearly 400% gain. This stock plummeted in 2022 because it hit a snag with revenue and its losses mounted. But management found its footing in 2023 and is now set up well for 2024.
AppLovin has a portfolio of first-party apps (games) that generate revenue. But its core focus is the discovery and monetization software that it provides to its customers. According to management, it only built first-party apps to experiment with its software -- and it appears its experiments have been wildly successful.
In 2023, AppLovin's software-platform revenue grew a whopping 46% to $1.8 billion. And its growth rate accelerated throughout the year, hitting 88% for the software segment in the fourth quarter.
To be clear, revenue stagnation from AppLovin's app business held its full-year revenue down overall -- as a whole, revenue was only up 17% in 2023. But the growth in its software business shouldn't be overlooked. Not only is it surging, but it's also boosting profitability.
NASDAQ: APP
Key Data Points
For this article I've highlighted GAAP net income, and AppLovin has it. But there are other important profitability metrics to consider, including free cash flow. Thanks to the growth of its software business, AppLovin's free cash flow surpassed $1 billion in 2023. With its current market valuation of $21 billion, the stock seems fairly valued to me today, even though it's already up so much.
That brings me to my closing point. CrowdStrike, Duolingo, Shift4Payments, and AppLovin are all top growth stocks because they have stellar growth rates, strong growth outlooks, and net profits. Those traits are rare. But that doesn't necessarily mean that all are timely opportunities right now -- some are downright expensive.
If I had to choose one of these four, I'd choose Shift4Payments for this reason. The company trades at a cheap valuation because it's easily overlooked. But its growth speaks for itself, and it's doing it profitably, whereas so many other fintech companies are burning cash. Therefore, Shift4Payments stock is one to consider buying today.
