Trends Investors Are Looking For
by James Carter / Follow my Twitter
High growth technology stocks are delivering huge returns for investors in 2020. Year to date, the SPY fund which tracks the S&P 500 is only up 1%. Compare that to popular Tech stocks which are delivering very high returns over 100 or 200% YTD. There are two trends that are accelerating growth quickly as people stay home and order more items online: e-commerce and connected at-home fitness.
2 Hot Stocks Right Now: Shopify and Peloton.
E-commerce: Shopify (SHOP)
I recently purchased a new iPhone and I immediately got a notification from Shopify from the SHOP app. Shipping and delivery info also arrived on my phone right away from Shopify. I was surprised to find out that even Apple uses Shopify, a new leader in global e-commerce platforms. Shopify is built for huge companies like Apple but they also support the brand new startup.
Shopify started back in 2004 as an e-commerce shop for a snowboarding company in Canada. It has changed dramatically since then and they power over 1 million businesses worldwide now. Their total gross merchandise volume exceeded $60 billion in 2019 and they are growing significantly in 2020 over 90% YoY.
“We help people achieve independence by making it easier to start, run, and grow a business. We believe the future of commerce has more voices, not fewer, so we’re reducing the barriers to business ownership to make commerce better for everyone.” — Shopify
We are seeing a enormous shift to digital commerce tied to the Covid pandemic as people stay home and shop. It is destroying small businesses, but it is benefiting the large e-commerce giants like Shopify. More companies and retailers are turning to digital to push ads and find new and existing customers. I know I sure get a lot of ads on social media platforms these days. Digital ad spending is picking up again and driving this new demand. I don’t see these changing any time soon.
Shopify Revenue in 2020
Q2 total revenue was $714.3 million, a 97% increase from the comparable quarter in 2019.
Q3 total revenue was $767.4 million, a 96% increase from the comparable quarter in 2019.
Shopify is experiencing monster revenue growth right now as new companies turn to their multi-channel platform. The Shopify platform can work with entrepreneurs with a basic plan of $29 per month but they also accommodate large enterprise with a $2,000 plus per month option. They provide best in class tools for both players. Shopify is also expanding their platform to work with Walmart, Facebook Shops, TikTok, eBay, and Instagram. So consumers can watch a video on TikTok and then easily shop items via Shopify backend systems. It is becoming so easy to buy more goods now!
“Entrepreneurs will be the force in rebuilding economies all over the world, which makes it even more important for Shopify to innovate and build the critical tools that merchants need to succeed in a low-touch retail environment.” — Harley Finkelstein, Shopify President
Connected At-Home Fitness: Peloton (PTON)
Peloton is not going away anytime soon as more cities and counties embrace new lockdown measures. I just had another friend buy a Peloton bike and share it on her Instagram stories adding to the marketing flywheel. It is a powerful movement and force right now and I anticipate big numbers for their upcoming earnings release in early November. The rate that Peloton is growing for revenue, customers, and employees is just mind-blowing.
Let’s look at some of the numbers from Q4 2020:
Paid Digital subscriptions grew 210% to over 316,800
Q4 total revenue grew 172% to $607.1 million
FY 2020 total revenue grew 100% to $1.8 billion
24.7 Monthly Workouts per Connected Fitness Subscription
UPDATE / NEW NUMBERS:
Peloton Q1 for Fiscal 2021
Paid Digital Subscriptions grew 382% to over 510,000; total Members grew to over 3.6 million
Q1 total revenue grew 232% to $757.9 million
Connected Fitness Subscription Workouts grew 306% to 77.8 million, averaging 20.7 Monthly Workouts per Connected Fitness Subscription, versus 11.7 in the year-ago period
Peloton users are doing almost 20 workouts per month with their subscription which means they are using Peloton almost every day! WOW that is just incredible. Here are some of the things I like about Peloton.
Why I like Peloton
Extreme revenue growth over 100% year over year
The marketing flywheel — people buying and sharing getting family and friends on board with the idea of having one
Brand awareness — It is now cool to have a Peloton so this is adding to marketing and brand awareness
Very high engagement from current Peloton users at 24.7 workouts per month
Low cost option — $10 per month fitness app that includes no hardware
High guidance for Q1 of FY 2021 of “$720 million to $730 million total revenue, 218% growth at midpoint” which means they are estimating growth to be over 200%!
"It is no secret that exercise makes us feel good, It's simple science: exercising creates endorphins and endorphins make us happy. On the most basic level, Peloton sells happiness." — Peloton CEO, John Foley
High Growth Tech Investing
Financial books and education tend to focus on large diverse funds that often deliver low returns. Over the years, I’ve learned that I can make more money with high growth Tech stocks. In order to maintain diversity and reduce risk, it is important to have 15–25 different companies in your portfolio. Let’s compare a large popular fund to Shopify and Peloton.
Year To Date Returns:
SPY large fund: 1%
Shopify (SHOP): 129%
Peloton (PTON): 280%
As you can see, the large fund SPY is only up 1% this year so this fund is not even keeping up with inflation. Shopify and Peloton are delivering unbelievable returns to investors and I’m confident they will do well for many years to come. There is extreme demand for their products and services now as people stay home and stay safe during the pandemic.
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I spent 8 years working in Tech in sales, marketing and growth roles at startups and in large enterprise. I worked on high growth teams selling software to leading companies in North America. Over the years, I became a top performer and went to various offices to train others on how to sell software and grow teams. Now, I’m a full-time investor, options trader, and independent writer. I’m following my passion for investing that started 13 years ago. Thank you for supporting my work as a writer and I hope you find value in my research, articles and perspective on Tech.
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Disclosure: I own stock in Shopify and Peloton. I also own call options for Peloton. This article is not financial advice.