One of the great things about the stock market is that it can reliably deliver strong returns over long periods of a decade or more, regardless of what happens over a few weeks or months. Though average market returns are competitive enough compared to other asset classes, investors can do even better by picking out stocks that can beat broader equities.
Two great candidates are Netflix (NFLX 1.91%) and Robinhood Markets (HOOD -2.96%). Here's more on these potential long-term market-beating companies.
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1. Netflix
Netflix is the leader in streaming. It has held this position for a long time, despite stiff competition from some of the world's largest tech and media companies. That speaks volumes about Netflix's underlying business. One of the company's strengths is its platform network effect. Its large ecosystem allows it to collect data on viewer habits and preferences and produce content accordingly. Its creations aren't always hits, but some are, and these tend to spread through word of mouth like wildfire.
Netflix also benefits from a powerful brand name that has become a synonym for streaming. The company did go through a challenging period about two years ago, partly due to competition, but several tweaks to its business fixed the issues. Netflix is now flying high, with rapidly growing revenue, earnings, and free cash flow.
NFLX Revenue (Annual) data by YCharts.
What does the future hold for the streaming giant? More competition should arise in the next decade, but streaming will also make significant headway. In the U.S., streaming made up just 43.8% of television viewing time as of March -- and that's in one of the more penetrated markets.
Netflix recently estimated a $650 billion revenue opportunity. It has captured a tiny fraction of that total. The company's already strong position in the streaming industry should allow it to profit from that, but newer initiatives could help, too. Netflix is increasingly getting into live events, including live sports. The company plans to use generative artificial intelligence (AI) to improve its search algorithm and to make quality content more efficiently.
So, the basic playbook remains the same for Netflix: Deliver quality content that attracts more viewers and greater engagement. This strategy has worked before for the company, and it can work again in the next decade. Netflix has what it takes to deliver the 12.8% compound annual growth rate (CAGR) it needs to turn $1,500 into $5,000 in the next 10 years.
2. Robinhood Markets
Robinhood faced criticism some years ago over facilitating risky trades for newbie investors, among other issues. But these complaints highlight an important point: The company's trading platform is attractive, and especially so to first-time, younger investors. It offers all sorts of perks, including commission-free trades across various asset classes, from stocks to crypto, all on the kind of sleek platform that has become characteristic of the modern digital world younger generations grew up with.
Meanwhile, the company's financial results have improved significantly over the past couple of years -- it has even become profitable. In the first quarter, Robinhood's revenue grew by 50% year over year to $927 million. Investment accounts grew 11% to 27 million, while total assets landed at $221 billion, 70% higher than the year-ago period. The company's net income per share for the period was $0.37, more than double the $0.18 reported in the year-ago period.
There are several growth opportunities Robinhood could ride over the next decade. First, it will likely remain one of the go-to trading platforms for younger investors. The average age of users on Robinhood is about 30, versus 55 for the largest online brokerage companies. Second, the company's newer initiatives help it cater to a larger pool of potential customers. It introduced Robinhood Legend, a daytrading desktop app, last year.
Third, Robinhood's subscription service, Robinhood Gold, is increasingly popular and grants it significant monetization opportunities. Gold members in the first quarter increased 90% year over year to 3.2 million. Robinhood makes various services available exclusively to these premium members. It recently launched wealth management and private banking services for Gold subscribers.
Robinhood isn't just a trading platform anymore. It offers a whole suite of services beyond that level. Its growing subscriptions, expanding initiatives, and appeal to younger generations could allow the stock to become a prominent financial services company in the next decade. The stock could deliver excellent returns in the neighborhood of the 12.8% CAGR it needs through it all to turn $1,500 into $5,000.
