It's hard to believe, but the internet -- as we know it -- didn't exist 30 years ago.
I can remember. It was slow; it was tedious to navigate. Much of what we take for granted today -- e-commerce, streaming video -- was awkward.
So, given how far the internet has come in 30 years, imagine how far it may go in the next 30. What stocks are likely to soar as we move into the next phase of the internet?
Here are three that I'm keeping my eyes on.
Image source: Getty Images.
Shopify
I've been a fan of Shopify (SHOP 1.53%) for a long time. The company, which operates an e-commerce platform that helps businesses open and run online storefronts, has been growing rapidly.
Indeed, Shopify's trailing 12-month revenue skyrocketed from $1.3 billion in 2019 to $7.1 billion this year. Quarterly revenue growth averaged 48% over that same period.
Granted, much of Spotify's rapid growth came during the pandemic's height. And while the company's growth has slowed in the years after, Spotify is still growing impressively. For example, in its most recent quarter (the three months ending on Dec. 31, 2023), the company reported revenue growth of 24%.
What is more significant, and perhaps much more, is how quickly Shopify's free cash flow is growing.
SHOP Free Cash Flow Per Share data by YCharts
Shopify's free cash flow per share -- the measure Jeff Bezos once called the ultimate financial metric -- not only rebounded from its post-pandemic slump, it reached new highs. That's crucial for the stock, as rising free cash flow per share tends to correlate to higher stock prices over time.
As e-commerce continues its forward march, it looks like Shopify will be one of the companies leading the way, making it an excellent choice for investors looking to capitalize on the trend.
DraftKings
Next up is DraftKings (DKNG 3.81%). In the same way that it can be difficult to appreciate the growth of the internet, you could say the same thing about the growing popularity of sports betting.
Over the last five years, dozens of U.S. states legalized sports betting -- opening a massive opportunity for companies like DraftKings that specialize in online sports gambling. As of this writing, sports wagering is now legal in 38 states and the District of Columbia.
As the number of Americans who can place legal sports bets rose, so did DraftKings' revenue. Trailing 12-month revenue exploded from $344 million in 2020 to $3.7 billion this year. Similarly, gross profit has soared from $197 million in 2020 to $1.4 billion.
While it's true that sports betting is a crowded market, DraftKings has one key competitive advantage over some of its publicly traded rivals: Low overhead. Unlike gambling competitors like Caesars Entertainment, MGM International, and Wynn Resorts, DraftKings does not operate hotels or resorts, which keeps its overall business model asset-light.
As a result, its balance sheet has no net debt, unlike its competitors'.
| Company Name | Long-Term Debt (in billions) | Cash (in billions) | Net Debt (in billions) |
|---|---|---|---|
| Caesars Entertainment | $12.3 | $1.0 | $11.3 |
| Wynn Resorts | $11.7 | $2.9 | $8.0 |
| MGM International | $6.4 | $2.9 | $3.5 |
| DraftKings | $1.3 | $1.3 | $0 |
As sports wagering continues to grow, DraftKings is well-positioned to grow along with it -- making this stock one to watch for growth-oriented investors.
Spotify
Finally, we come to perhaps my favorite internet stock: Spotify (SPOT 3.86%).
There are two big reasons why Spotify's stock is up more than 200% over the last 18 months:
- Growth of the audio streaming market
- Great leadership
Let's start with the former.
No one buys physical music anymore. Sure, technically this is untrue, but the trend is clear as day -- physical forms of music (vinyl, CDs, etc.) have become niche markets. Streaming, on the other hand, has become the go-to source of revenue for the music industry. And, indeed, it revitalized it. Total music industry revenue in 2023 hit $28.6 billion -- its highest level ever -- thanks to over $19.3 billion in revenue from streaming royalties.
Spotify, with over 615 million monthly active users (MAUs) and 239 million paid subscribers, is cashing in on the streaming bonanza.
In its most recent quarter (for the three months ending March 31, 2024), the company reported revenue of 3.6 billion euros ($3.9 billion), up 20% from a year earlier. Moreover, management provided upbeat guidance for MAUs and gross profits, indicating that the company has more room to grow revenues and income.
The internet changed the music industry in a big way, and streaming is now the name of the game. Spotify, with its massive subscriber base and surging revenue, is a stock to watch in the years ahead.
