Time is one of the most powerful advantages you can have as an investor, and kids have all the time in the world. Compounded returns accumulate over the years, and so does financial knowledge, so no kid is too young to start investing and learning about building future wealth in the stock market.
With this in mind, we asked our contributors to highlight three dynamic growth companies for kids, to give them their first steps into the market. Names such as Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), and Twitter (NYSE:TWTR) popped up as particularly interesting alternatives for investors of all ages.
Tim Brugger (Facebook): As with any investment, a primary criterion in determining an appropriate stock for kids is its long-term growth potential. But if you're able to find a suitable alternative that's also a company your children know firsthand, they'll be even more engaged in the process. Facebook certainly meets both criteria.
Whether your child is a "friend" of Facebook or not, there's little doubt that with 1.39 billion monthly average users, or MAUs, kids know of the social-media king. And from an investment perspective, Facebook boasts multiple opportunities for long-term growth. This year should see a significant revenue boost, as Facebook has finally taken the wraps off its video advertising solution. Industry pundits estimate that video will generate $700 million in revenue this year alone, which may prove conservative. And video ads are just the beginning.
WhatsApp has quickly become a big-time mobile messaging player, with 700 million MAUs, Messenger has grown to over 500 million monthly users, and Facebook's Oculus virtual-reality tool is nearing release and is expected to provide a bump to its top line.
All these growth drivers may pale in comparison with the potential held by Instagram and its 300 million -- and growing -- MAUs. Instagram's demographics are an advertiser's dream, and its format is a natural for video ads. And Instagram, like Facebook, is another social-media behemoth your child probably knows and may even use. Facebook offers growth and familiarity, and it would be a great alternative for your kid's budding portfolio.
Joe Tenebruso (Google): When I was a kid in the '80s, I had a set of encyclopedias that I used for book reports and other school assignments. They were fantastic. Filled with pictures and descriptions of so many different people and events, they were a treasure trove of information. There was just one thing that made them slightly less than a perfect information source -- they were written in 1968.
Today, my 7-year-old daughter has at her fingertips nearly all the world's information, and she can access news that was updated just moments ago. The company that makes this all possible is, of course, Google, and I believe it's an excellent stock for kids.
Kids today don't research something on the Internet; they "Google" it. Increasingly, they're watching videos on YouTube -- a Google-owned property -- rather than on their parents' televisions. They may also be doing their homework on a Chromebook and using Google's Chrome Web browser to access the Internet. They may even have their own Android-powered smartphone or tablet, further linking them to Google's expanding ecosystem.
I'm a firm believer that excellent investment ideas can often be found in the products and services we know and love. In addition, the more interested a kid is in a business, the more likely he or she is to be interested in learning about it as an investment. Yet that learning experience won't be much fun if it's unprofitable, so I should note that I believe Google is an attractive long-term investment at current prices.
Maybe even more importantly, especially for young investors with an ultra-long-term investment horizon, Google's innovative culture should keep the tech titan at the forefront of technology for many years to come, with science-fiction-like new products such as Google Glass, self-driving cars, and even medical robots already in Google's development pipeline.
Lastly, Google's "Don't be evil" mantra will resonate with many kids and can give parents an excellent example of how it's possible to do well by doing good.
Andrés Cardenal (Twitter): Twitter has experienced some big ups and downs over the past several quarters. While the company is making amazing progress in terms of monetization, user growth has been somewhat disappointing, and this is dragging on the stock's performance. The good news is that this leaves plenty of room for Twitter to continue expanding in the years ahead, so it offers abundant upside potential from current levels.
Many users find Twitter much harder to use than Facebook, and that's a limitation when it comes to growth. The company acknowledges the problem, and management is actively working on making the experience more simple and enjoyable. For example, Twitter is offering alternatives for new users to build a timeline without knowing the Twitter language or who's who in the platform. Also, a new "while you were away" feature shows popular tweets the user has missed.
Twitter has 288 million monthly active users as of the last quarter, a 20% year-over-year increase. The platform has already gone through the inflection point in terms of establishing its position and relevance, but Wall Street is still demanding faster growth.
On the other hand, revenue jumped by a jaw-dropping 97% year over year, to $479 million during the quarter. Rising monetization was the main driver, as average revenue per thousand timeline views grew 60% versus the same quarter in the prior year.
Twitter is an enormously valuable platform offering access to real-time news and live interactions with your favorite sports star, world leaders, or artists. Yes, I have included those annoying pop stars inexplicably loved by kids under a widely broad definition of "artists." Leaving personal considerations aside, if management plays its cards well, Twitter should continue gaining relevance and growing earnings for years to come.