Investors looking to boost their long-term returns should consider this new breed of companies finding new answers to old problems.
This is an unprecedented time in human history and a challenging time for investors. After taking part in the longest bull market run in history, investors were whipsawed into the fastest bear market decline on record. From its peak on Feb. 18, the S&P 500 plunged 27% in just 23 days, before ultimately shedding 34% of its value. This quick reversal of fortunes left investors dazed and confused, and while the market has regained much of those losses, the future is still uncertain. There’s even the potential for additional lockdowns as we continue to battle the COVID-19 pandemic.
It’s important to remember that, despite these challenges, investing in the stock market remains the clearest path to accumulating wealth over time, even in the face of historic volatility.
Assuming you have an adequate emergency fund and $3,000 (or less) in disposable cash you don’t need for at least the next three to five years, here are three companies that could make you a small fortune over the coming decade.
Datadog: Identifying problems before they become critical
One of the paradigm shifts that occurred as the result of the pandemic is the shuttering of office spaces and having employees work from home. Companies are relying on their cloud-based systems now more than ever, but that new reality brings with it the potential for problems. IT departments are now decentralized, and system downtime can be costly.
That’s where Datadog (NASDAQ:DDOG) comes in. The cloud native platform-as-a-service provider keeps a close watch on its customers’ cloud activity, sending out the alarm when a problem or issue arises that might result in downtime. It goes even further, providing useful feedback and analytics that can both prevent these issues from happening in the future and improve cloud-computing operations.
The groundswell in remote work has resulted in a surge of additional business for Datadog. The company’s first-quarter revenue grew 87% year over year, accelerating slightly from its 85% growth in Q4. While Datadog’s total customer count grew 40%, large enterprise customers — those contributing annual recurring revenue of $100,000 or more — grew at an even faster clip, up 89%. This helped the company turn profitable for the first time.
There could be much more to come. Datadog’s revenue last year totaled about $363 million, but management estimates its market opportunity at about $35 billion, leaving plenty of runway for future growth.
By identifying and addressing problems before they become critical, Datadog has carved out a large and growing niche, and the need for remote work has accelerated the demand for its services.
DocuSign: The future of contracts is now
Another by-product of the pandemic has been the need for social distancing, seriously curtailing the ability to sign documents in person. DocuSign (NASDAQ:DOCU) already controlled about 70% of the e-signature market, but the migration to digitally signed documents accelerated in light of recent events.
DocuSign’s revenue grew by 39% in the first quarter, keeping pace with its growth rate in 2019 and accelerating from the 35% gains the year before. More importantly, nearly 95% of its revenue came from subscriptions, providing a solid base of recurring revenue that’s unlikely to decline materially. At the same time, adjusted profits soared 71%.
What investors may have failed to notice, however, is that DocuSign is no longer just about signatures. Last year, the company launched the DocuSign Agreement Cloud, a suite of products and integrations that help businesses automate the entire life cycle of contracts, which includes preparing, signing, acting on, and managing them.
Management believes DocuSign has just scratched the surface of the e-signature market, which it estimates at about $25 billion, while the addition of the Agreement Cloud could potentially double its total addressable market to $50 billion. DocuSign generated just $974 million in revenue last year, showing the magnitude of the opportunity.
This gives investors plenty of incentive to sign up with DocuSign.
Okta: Identity verification is more important than ever
With remote work becoming the rule rather than the exception, many businesses have entered uncharted waters. The majority of employees are now signing into workplace systems remotely, ratcheting up the potential for unauthorized access.
Okta (NASDAQ:OKTA) is the clear leader in identity and access management, and businesses turned to the company in droves to verify the identity of internet users accessing their systems. The company offers a wide variety of technology solutions geared to ensuring that only authorized users gain access to workplace applications. These permissions include the ability to use a single sign-on to gain access to multiple systems, more complex multifactor authentications, and everything in between.
Business is booming. Okta’s first-quarter revenue grew 46% year over year, while subscription revenue grew more quickly at 48%. The company isn’t yet profitable, but its losses appear to be manageable. Its customer count grew 28% year over year, but those spending more than $100,000 annually jumped 38%. Existing customers are spending more, as evidenced by Okta’s dollar-based net retention rate of 121%. The combination of new customers and higher spending from existing clients pushed the company’s calculated billings up 42% and its remaining performance obligation (read contract backlog) up 57% to $1.24 billion.
This could just be the beginning. Okta’s revenue of $586 million in 2019 pales in comparison to its total addressable market, which management estimates at about $55 billion.
The need to verify the identity of internet users will only increase from here, playing right into Okta’s wheelhouse.
Author: Danny Vena
Source: Fool: Got $3,000 to Invest? These 3 Stocks Could Make You Rich