Major secular trends are a great starting point when looking for new investment ideas. Innovations like cloud computing and digital financial services have already changed the world, and those trends are only gaining momentum. Of course, not all stocks in a given industry will outperform the market over the long term, so the next thing I look for is a competitive advantage. In other words, what differentiates a company from its rivals?
With that in mind, DigitalOcean Holdings ( NYSE:DOCN ) and SoFi Technologies ( NASDAQ:SOFI ) have recently caught my eye, and I think both of these stocks could grow tenfold in the next decade. Here’s why. Image source: Getty Images. DigitalOcean: Simplifying cloud computing
Cloud computing has fundamentally changed the way businesses provision resources. This technology allows companies to access services like compute and storage through the internet, eliminating the cost and complexity of managing on-site hardware. However, the products offered by legacy cloud vendors are typically aimed at large enterprises, meaning they’re often too complex for individual developers, start-ups, and small- and medium-sized businesses (SMBs).
For that reason, DigitalOcean is on a mission to simplify cloud computing. Like legacy vendors, its cloud provides a range of infrastructure and platform services, but those services feature a more intuitive click-and-go user interface, as well as transparent consumption-based pricing. DigitalOcean also provides live support 24×7 to all of its customers, regardless of price point.
In short, DigitalOcean makes it possible for clients to deploy solutions within minutes, without any training. And that value proposition differentiates it from rivals like Amazon . As a result, DigitalOcean has become quite popular with developers and SMBs, as evidenced by its financial performance.
As shown above, DigitalOcean is growing revenue more quickly than its customer count — though both figures are accelerating — indicating an uptick in average revenue per user. Moreover, the company posted a retention rate of 100% in 2019, but that metric hit 113% in the most recent quarter. Put another way, the average customer spent 13% more over the past year, evidencing the stickiness of DigitalOcean’s cloud.
Going forward, the company is well positioned to maintain that momentum. Global spending on infrastructure and platform services will total $116 billion by 2024, according to the International Data Corp. And DigitalOcean believes there are currently 100 million SMBs and 19 million developers worldwide, meaning its current customer base comprises a mere fraction of its true potential. That’s why this $10 billion company could grow tenfold over the next decade. SoFi Technologies: Simplifying consumer finance
SoFi brands itself as a one-stop-shop for financial services. The breadth of its platform exceeds that of most (if not all) banks, credit unions, and fintech companies, giving clients access to lending products like student loans, personal loans, and mortgages, as well as financial solutions like money management and investing tools, cash-back credit cards, and insurance coverage through third-party partners.
More importantly, SoFi provides this end-to-end experience through a single mobile-first platform, which has helped it gain traction with consumers. In fact, the number of SoFi members has accelerated for the last eight consecutive quarters, and the number of products used by those members has grown even more quickly.
As a result, SoFi has is raking in revenue at a rapid pace.
In October 2020, SoFi received preliminary, conditional approval for its national bank charter, a key element of its long-term growth strategy. And earlier this year, the company announced its intention to acquire Golden Pacific Bancorp, a community bank based in California. Once SoFi has earned its banking charter and completed this acquisition, management sees significant upside.
Specifically, SoFi will be able to provide deposit accounts to members using its money management solution (SoFi Money). And the cash stored in those deposit accounts can then be used to fund SoFi’s lending products, lowering its costs to originate loans. As a result, SoFi will be able to provide lower interest rates to borrowers and pay higher interest rates to SoFi Money account holders.
As a final thought, management currently puts its market opportunity at $2 trillion, giving the company plenty of room to grow its business. More importantly, SoFi’s broad mobile-first platform has clearly captured consumer interest, and I expect that dynamic to remain in place as the company continues to bring new products to market. That’s why this fintech stock — which currently has a market cap of $16 billion — could grow tenfold over the next 10 years . Should you invest $1,000 in Digitalocean Holdings, Inc. right now?
Before you consider Digitalocean Holdings, Inc., […]
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