Although we are now in a period of accelerating economic growth, which may benefit economic and value stocks, long-term trends in technology remain. Technological innovation has spurred the biggest winners over the past decade, and there is a good chance that technical stocks will continue to dominate the next decade, especially if interest rates remain historically low.
This means that high-growth disruptors can regain market leadership coming out of 2021, so investors may want to look at three of the fastest-growing stocks on the market today: Etsy (NASDAQ: ETSY), Sea Limited (NYSE: SE)and Square (NYSE: SQ).
First up is the niche e-commerce site Etsy, which recorded impressive revenue growth of 141% last quarter. Etsy dominates handmade, vintage and customized goods as opposed to larger e-commerce platforms that tend to offer more mass market, commercially manufactured goods. Although the handmade or “special” niche is smaller, it is still large enough for Etsy to log some serious growth.
Yes, the recent number of blowouts was spurred by the pandemic. As people are stuck at home and unable to spend on travel and leisure activities, Etsys e-commerce marketplace was perhaps perfectly positioned to get out and thrive during financial lockdowns. Still, some may worry about what will happen to Etsy’s growth after the pandemic, but data shows that Etsy customers are stuck and more and more loyal: Although total active buyers rose by 91% in the last quarter, buyers rose again 114% and usual buyers increased by even greater 205%.
Higher growth rates for repeat and regular buyers show that Etsys’ platform is pleasing to customers, many of whom appear to be holding on in the long run. Despite the economic reopening of this quarter, management still expects between 15% and 25% revenue growth in its upcoming earnings results with adjusted EBITDA margins between 25-28%, even as the company reinvests more in technology, branding and international growth. To top it all off, Etsy just announced the acquisition of Depop of $ 1.625 billion. Dollar in June, a Gen Z-focused second-hand clothing market, which in itself grew revenue over 100% by 2020.
While the pandemic was certainly an accelerator, Etsy’s long-term growth story seems far from over, though it may not grow as fast when it comes out of the pandemic this year.
Rising e-commerce star Sea Limited, based in Singapore but listed on New York Stock Exchange, also showed some of the highest growth in US markets last quarter with revenue as high as 147%. Sea began as a video game distributor and messaging platform back in 2009. But beginning in 2015, founder Forest Li began building the company’s Shopee e-commerce platform and SeaMoney digital payment platform, targeting a large region relatively permeated by Internet access and e trade.
Sea hit a subsequent home run with Free fire, the first in-house developed game that continues to make huge profits, even four years after it was launched. Last quarter, Sea’s gaming segment grew 111%, and adjusted EBITDA increased 140% to $ 717.3 million. The profitability of this gaming segment has allowed Sea to aggressively expand Shopee, which experienced top-line growth of as much as 250% last quarter.
Shopee is still bleeding cash on the bottom line, but the gaming company is giving Sea the opportunity to aggressively expand this e-commerce platform with reduced prices and local customization. This aggressiveness has helped Shopee leapfrog past former movers in the region to become the leading e-commerce platform across Southeast Asia and Taiwan, both in terms of active users and time spent on Android phones.
With its rapid success in Southeast Asia, Sea has now moved towards Latin America and built operations in Brazil and Mexico in 2021. With a population size roughly similar to that in Southeast Asia, and with a similarly underdeveloped Internet and e-commerce economy, Latin America will be another growth path for this all-star stock. In the foreseeable future, Sea Limited’s growth prospects look almost, well … unlimited.
Finally, fintech leader Squares’ quarterly earnings came in at a miraculous 266% last quarter. Of course, this number can be a little misleading; 87% of this growth came from the company Bitcoin (CRYPTO: BTC)-related trading turnover. Remember, in the first quarter of 2021, bitcoin prices rose sharplyalong with interest in crypto and trading activity.
Square’s bitcoin revenue benefits from both rising bitcoin prices and an increase in bitcoin trading. Last quarter, bitcoin trading revenue grew by an impressive 1,047%, accounting for almost 70% of Square’s total revenue, up from approx. 22% of revenue in the previous quarter. Still, it is not very profitable, although bitcoin trading can be a great tool for acquiring and retaining customers. While bitcoin trading is an oversized portion of revenue, bitcoin-related gross profit was only 8% of Square’s total gross profit.
Of course, Square’s core segments are also growing well; transaction-based revenue increased 27% in the first quarter, despite the fact that the US economy had not reopened completely and patched a “2/3” normal “quarter from the previous year. A large portion of Square’s transaction revenue comes from personal retailers, so it should come back when the economy reopens. Meanwhile, Square’s subscription and service revenue, primarily from instant deposits in the Cash App and Cash App for Business, increased by 88%. Hardware revenue, which is a minimal part of revenue, grew by 39%.
Square continues its development of two powerful ecosystems with its Seller Ecosystem for Merchants and Cash App for Consumers, which grew gross profits 32% and 171% respectively, and Square continues to innovate new products within each. Last quarter, Square sellers increasingly adopted Square deals for service-based businesses, and the company launched peer-to-peer bitcoin payments and transfers within the Cash app. Management says they are now looking at several ways to not only integrate new products within each ecosystem, but also between the two ecosystems, such as offering Cash App services to Square Loyalty members. And the company also continues to penetrate international markets, such as the UK, Australia and Japan.
As the leading innovator in fintech space, Square seems to be ready for great growth this decade as it continues to add features to both ecosystems.
This article represents the author’s opinion, that may disagree with the “official” recommendation position for a Motley Fool premium advisory service. We are motley! Questioning an investment dissertation – even one of our own – helps all of us think critically about investing and make decisions that help us become smarter, happier and richer.