Facebook (NASDAQ: FB) may have been one of the most hyped IPOs in history. But brave investors who bought on the first day of trading and held until today have enjoyed total returns of 377%. That's an incredibly impressive return, especially when considering that Facebook has been a public company for only about six years.
So, which stocks do we think can put up Facebook-like returns in the years ahead? We asked a team of top Motley Fool investors to weigh in, and they picked Shopify (NYSE: SHOP), Square (NYSE: SQ), and MercadoLibre (NASDAQ: MELI).
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Bringing customers right in the door
Dan Caplinger (Shopify): Facebook has been an amazingly successful company, having found a way to build an impressive network of users and then make money linking its members to the goods and services they're most likely to want through advertising. Some users find that level of catering to individual tastes off-putting, but the amount of money available through e-commerce makes the demand for sales leads worth the potential reputational risk.
Shopify is looking to cash in on the same e-commerce growth, but it's looking to do so more actively by helping its clients build their own e-commerce presence. By doing so, Shopify is tapping into a growing entrepreneurial spirit in the global marketplace, as people with innovative products and services realize that the traditional route of finding a large-scale professional distributor or retailer is too competitive and fraught with potential pitfalls to be worth the risk in many cases. Shopify's tools let businesses establish themselves on the internet cheaply and efficiently, but they also have scalable capabilities that can grow along with a client's e-commerce business needs.
Shopify's most recent results show that the company continues to grow fast. Some lingering concerns remain among high-growth investors that the e-commerce services provider won't grow fast enough to justify its past share-price gains, but Shopify's core business remains strong. By giving clients a direct link to customers, Shopify could give e-commerce entrepreneurs the ability to bypass channels like Facebook -- while producing profits for itself in the long run.
Facebook-like potential to build a payments ecosystem
Matt Frankel (Square): Square's stock price has more than quintupled over the past two years, but for good reason. And there could be lots of upside ahead.
First, Square's core payment processing business is a huge global opportunity, especially since Square focuses on smaller merchants for whom card acceptance has historically been prohibitively expensive. It's estimated that two-thirds of businesses around the world still don't accept card payments, and it's fair to assume that a disproportionately high percentage of these are at the smaller end of the spectrum -- Square's bread and butter. Worldwide card payment volume is expected to reach $55 trillion per year by 2025, so to say this is a huge opportunity is an understatement.
As if this weren't enough, Square is leveraging its customer base to create a small-business ecosystem. Its fast-growing Square Capital business lending platform earns interest income by meeting customers' financing needs, the Caviar food delivery platform targets Square's restaurant customers, and most recently, the acquisition of Weebly will allow Square's customers to develop their e-commerce presence without venturing outside of the company's ecosystem.
Finally, on the personal side, Square is emerging as a leader in the peer-to-peer payments business, as the Square Cash app is the No. 1 financial app in the App Store. Also, its recent bitcoin integration could grow into a big revenue driver if cryptocurrencies continue to grow in popularity.
In a nutshell, Square has several avenues of growth that fuel each other's success, and there is still lots of untapped potential to expand.
A misunderstood report
Brian Feroldi (MercadoLibre): MercadoLibre, which is known to many investors as the "Amazon & Ebay & Paypal & Craigslist of Latin America," recently reported abysmal results. Sales "only" grew by 19%, which is far slower growth than investors are used to seeing from the company. To make matters worse, this profitable company reported a net loss for the period. Those are tough numbers for growth investors to swallow. When combined with the crisis in Venezuela, it's no surprised to see that shares have fallen by more than 28% in the last two months alone.
So, is the bull case for owning this stock over?
I'm a firm believer that the answer to that question is "no." My reasoning is that the company's rotten first-quarter results are more of a reflection of recent changes to U.S. accounting standards than a sign that the business is under distress. What's more, this quarter also coincided with a large uptick in shipping costs in Brazil. If you strip away those factors, then revenue would have grown by 60%, and the company would have been profitable.
A quick look at the company's key operating metrics also shows that the platform remains as popular as ever. Registered users jumped by 22%, items sold increased by 50%, and payment transactions jumped 68%. These numbers are much more indicative of the overall health of the business because they are not impacted by accounting changes or currency movements.
Overall, I think investors have every reason to believe that MercadoLibre is as strong as ever and is built for long-term growth. With shares trading significantly below their 52-week high, I think right now is a fine time for growth investors to get in.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of Amazon, Facebook, MercadoLibre, Shopify, and Square. Dan Caplinger has no position in any of the stocks mentioned. Matthew Frankel owns shares of PayPal Holdings and Square. The Motley Fool owns shares of and recommends Amazon, Facebook, MercadoLibre, PayPal Holdings, and Shopify. The Motley Fool owns shares of Square. The Motley Fool recommends eBay. The Motley Fool has a disclosure policy.