Longtime investors will no doubt be familiar with the popular acronym FAANG, which stands for some of the most disruptive and wealth-generating companies of the past decade. They are:
- Facebook, renamed Metaplatforms
- Google, which changed its name to Alphabet
Each of these five companies is the undisputed leader in its sector, respectively revolutionizing social media, smartphones, e-commerce, streaming video and Internet search. As a result, investors have enjoyed life-changing gains between 600% and 2,550% over the past 10 years, even after the recent bear market carnage.
That said, FAANG shares are getting a bit long in the tooth, which is “frightening” some investors. While still likely to beat the market for some time to come, forward-looking investors are beginning to seek out the next generation of disruptive stocks. With that in mind, let’s consider my newly minted GHOST acronym holdings and what makes them worthwhile.
G is for Global-e Online
The growth rate of online sales has slowed significantly since its first pandemic growth spurt, but e-commerce is here to stay and will only get bigger from here. The next generation of expansion will likely come from cross-border sales, and that’s where Global-e online (GLBE -4.48%) Between.
The company addresses many challenges unique to international online retail, including currency exchange, customs and duties, regulatory compliance between countries, foreign languages and local payment methods. Global-e quickly removes these barriers, allowing merchants to focus on selling their goods and services globally.
In fact, its tools are so indispensable that e-commerce experts Shopify took a 9% stake in the company valued at more than $500 million while making Global-e Online the exclusive provider of cross-border services for its merchants. That’s a huge vote of confidence from the world’s largest provider of e-commerce tools.
Recent Global-e results have put an end to the idea that e-commerce is dead. In the second quarter, revenue grew 52% year-over-year, fueled by gross merchandise volume (GMV) that jumped 64%. It should be noted that the company continues to generate losses as it evolves its platform and struggles to expand its customer base. However, its software-as-a-service (SaaS) model will help the company leverage each additional customer, thus shortening the time to value.
Considering the gateway services it provides to enable digital sales worldwide, Global-e Online is a solid choice for the next generation e-commerce winner.
H is for HubSpot
From humble beginnings in inbound marketing, HubSpot (HUBS -3.21%) has become a full-fledged customer relationship management (CRM) powerhouse. The company always helps businesses meet their customers where they are, rather than intimidating them with traditional marketing. But HubSpot now offers an expanding ecosystem of tools designed to more effectively manage customer connections, including marketing, sales, and service solutions, as well as content management and payment tools.
History has shown that it’s much more profitable to retain the customers you have than to beat the bushes to find new ones, and HubSpot helps businesses achieve this lofty goal. But don’t take my word for it, because his results tell the story.
For the second quarter, HubSpot’s total revenue increased 41% year-over-year in constant currency. Although not yet profitable based on generally accepted accounting principles (GAAP), the company is generating strong and growing cash flow which shows that its lack of profits is the result of non-cash items like depreciation .
Additionally, its customer base grew 25% year-over-year, with more than 60% of those customers adopting multiple products. So it should come as no surprise that HubSpot was named a Leader by GartnerMagic Quadrant for Marketing Automation Platforms.
Effective customer management has never been more important, and HubSpot is a leading provider of next-gen CRM tools.
O is for Okta
One of the most important business lessons from the pandemic is the need for strong frontline defenses to prevent unauthorized access to workplace systems.
It’s there that Okta (OKTA -5.46%) (pronounced Ahk-tuh) comes in. The company is the leading provider of independent identity verification and access management solutions. Its cloud-based platform acts as a gateway, providing a secure entry portal for employees, customers, and even contractors. The company’s zero-trust model ensures that only people with the appropriate authorization can access company systems. This prevents the hacks, intrusions and data breaches that all too often make the headlines.
Business is booming. For the first quarter of fiscal 2023 (ended April 30), revenue grew 65% year-over-year, while its remaining performance obligations (RPO) — unbilled but contractual revenue — increased increased by 43%. Current RPO share is up 57% year over year, showing that its future growth opportunities are accelerating. Like HubSpot, Okta is not yet profitable but generates strong free cash flow.
Okta has also been cited as the Leader in Access Management by Gartner and Forrester Research, making it the obvious choice for businesses around the world.
The need to protect enterprise systems and prevent unauthorized intrusions has never been greater, and Okta is well positioned to take advantage of this trend.
S is for snowflake
One of the biggest business trends in recent memory is the migration of data, applications, and systems to the cloud. This Herculean task is ongoing, but the benefits are undeniable. Not only can employees access these systems from anywhere, but assembling the data in one place allows for more robust analysis.
It’s there that Snowflake (SNOW -4.83%) shines. Rather than simply storing business systems and data in the cloud, it helps businesses collect, store, and analyze information, allowing them to extract more meaningful insights from the data they generate.
In the first quarter of fiscal 2023 (ended April 30), revenue grew 85% year-over-year, driven by product revenue which grew 84%. Perhaps more importantly, Snowflake’s RPO jumped 84%, suggesting that its growth spurt will continue. Profitability is still elusive, but Snowflake is generating strong free cash flow, suggesting it’s only a matter of time before the company generates meaningful profits.
At the same time, its impressive customer statistics illustrate the impressive potential of Snowflake. Its number of customers increased by 40%, but those who spent $1 million or more in the previous 12 months increased by 98%. Additionally, existing customers tend to spend more money over time, as evidenced by the company’s 174% net revenue retention rate.
Given its ability to deliver valuable and actionable business insights, Snowflake is well positioned to continue to benefit from the tailwinds brought by digital transformation and the growing adoption of cloud computing.
T is for The Trade Desk
The advertising landscape is in the midst of a paradigm shift, shifting from traditional broadcast sources to their digital substitutes. Additionally, marketers want to get value for money while avoiding the inherent pitfalls of walled gardens. This goal is further complicated by the impending death of ad tracking cookies and growing calls for stronger consumer privacy protections.
The trading post (TTD -4.96%) is there to answer the call. The company’s Unified Identifier 2.0 de facto replaces cookies, but does not use personally identifiable information, making it the obvious choice for a growing number of marketers. Perhaps most importantly, its industry-leading platform puts advertisers first, allowing them to create advertising campaigns that integrate their own first-party customer data to better reach their target market.
In the second quarter, even as other digital advertisers saw their revenue decline, The Trade Desk once again proved its worth. The company’s revenue increased 35% year-over-year, on top of more than 100% growth in the prior-year period, while its adjusted net income grew 13% and operating cash flow nearly tripled.
The Trade Desk has strong and growing relationships with all major advertising agencies and many smaller ones, thanks to its transparent pricing system and measurable results. It also boasts a 95% customer retention rate, dating back over eight years.
As a leader in programmatic advertising and a leader in ad technology, The Trade Desk has the inside track to continue disrupting the bland ad industry.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Danny Vena holds positions at Alphabet (A-shares), Amazon, Apple, Global-e Online Ltd., HubSpot, Meta Platforms, Inc., Netflix, Okta, Shopify, Snowflake Inc. and The Trade Desk and has the following options: long January 2023 $1,140 calls on Shopify and long January 2023 $1,160 calls on Shopify. The Motley Fool owns and recommends Alphabet (A-shares), Alphabet (C-shares), Amazon, Apple, Global-e Online Ltd., HubSpot, Meta Platforms, Inc., Netflix, Okta, Shopify, Snowflake Inc. and The Trading Counter . The Motley Fool recommends Gartner and recommends the following options: Shopify January 2023 $1140 long call, Apple March 2023 $120 long call, Shopify January 2023 $1160 short call, and Shopify short call $1160 of $130 from March 2023 on Apple. The Motley Fool has a disclosure policy.
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