The FAANG stocks dramatically outperformed the market over the past decade. Netflix led the way with a 1,750% return, followed by Amazon and Alphabet with returns of 847% and 651%. Finally, Apple and Meta Platforms delivered gains of 535% and 438%.
All those companies benefited from industry leadership, strong revenue growth, and a massive market opportunity, and there’s a good chance the next FAANG stocks will share those traits. With that in mind, the STAR stocks could deliver market-crushing returns in the coming decades.
Shopify (NYSE: SHOP) provides software and services that allow merchants to manage businesses across physical and digital channels, including direct to consumer (D2C) websites. That differentiates it from marketplace operators like Amazon. D2C models afford merchants greater control over the buyer experience, which can help them build lasting customer relationships.
Shopify has become a key player in the commerce industry. Its platform powers over 2 million businesses, and it ranks as the leading e-commerce software vendor as measured by market presence. Perhaps more impressively, Shopify powered 10.3% of e-commerce sales in the U.S. last year, more than any other retailer except Amazon.
The company’s strong competitive position has translated into solid financial results.
Free cash flow (TTM)
Online retail sales totaled $4.9 trillion last year, but that figure will climb as e-commerce takes share from traditional retail. That puts Shopify in front of a big opportunity. Management is working to strengthen its market presence by expanding internationally, engaging buyers through its mobile app, extending payments services to non-Shopify merchants, and building a fulfillment network to enable next-day delivery.
If Shopify successfully executes on those initiatives, it could be one of the world’s most valuable companies a decade or two down the road. That would likely mean market-crushing returns for patient investors.
Tesla (NASDAQ: TSLA) has revolutionized the auto industry with its direct sales model, semiconductor expertise, and battery cell technology. In the first quarter, Tesla once again ranked as the leader in electric car sales, capturing 15.5%market share. Better yet, its relentless pursuit of manufacturing efficiency is paying off. It posted an industry-leading operating margin of 14.6% in third-quarter 2021, and that figure rose to 19.2% in Q1 2022.
Financially, Tesla is firing on all cylinders.
Free cash flow (TTM)
Tesla aims to grow vehicle deliveries by 50%per year, and it should benefit from several near-term catalysts, including increased production capacity from new factories in Germany and Texas, and the debut of the Cybertruck and Semi. However, CEO Elon Musk sees its largest opportunities in artificial intelligence and robotics.
Tesla has a robotaxi slated for production in 2024, and Musk says full self-driving (FSD) technology will ultimately be the primary profit engine for the car business. Once its FSD software is ready, Tesla will launch an autonomous ride-hailing service, entering a market that could generate $2 trillion in annual profits by 2030, according to Ark Invest.
Tesla also plans to build an autonomous humanoid robot that Musk believes could be more valuable than its car business. Production could start as early as next year. If Tesla achieves its ambitions, it could reshape the world in the coming decades.
Airbnb (NASDAQ: ABNB) has disrupted the travel industry with its asset-light business model. By sourcing rental properties from hosts in tens of thousands of cities, its business model is more cost-efficient than traditional hotels. Airbnb can onboard new hosts (and add new listings) in minutes, with little expense, and its platform offers a greater variety of lodging options for guests.
Despite facing significant headwinds at the pandemic’s onset, Airbnb has rebounded quickly. Its free cash flow margin of over 40% is particularly noteworthy.
Free cash flow (TTM)
Thanks to recent innovations like flexible search parameters and listing categories (like “treehouse” or “castles”), Airbnb is evolving into a recommendation engine. Its platform can offer ideas for people who are flexible on where and when they travel. It’s also working to disrupt the tourism industry by enabling guests to book experiences while traveling.
In the past year, Airbnb’s gross booking value was $53.8 billion, a fraction of its $3.4 trillion addressable market. If the company continues to innovate, this growth stock could generate monster returns.
Roku (NASDAQ: ROKU) is the most popular streaming platform in the U.S., Canada, and Mexico. It accounted for 31% of global streaming time in Q1, nearly doubling the market share of the next closest competitor, Amazon Fire TV. It owes that success to brand authority and the growing collection of free programming (including original content) on its ad-supported streaming service, The Roku Channel.
Thanks to that competitive edge, Roku has become a key player in the rapidly growing digital ad industry.
Free cash flow (TTM)
Roku is well positioned to maintain its momentum. Connected TV ad spend in the U.S. will reach $100 billion by 2030, up from $21 billion in 2021, according to BMO Capital Markets. Just as Google built its ad supremacy by positioning itself as the gateway to the internet, Roku could achieve the same success as the gateway to streaming entertainment.
Roku also recently announced shoppable ads for retailers, a service that will leverage its payments platform (Roku Pay) to enable consumer purchases directly through ads on the platform. To that end, Roku could have a sizable digital payments business in a decade or two, in addition to a digital ad empire. That’s why this growth stock is a buy.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Airbnb, Inc., Amazon, Roku, Shopify, and Tesla. The Motley Fool has positions in and recommends Airbnb, Inc., Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc., Netflix, Roku, Shopify, and Tesla. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify, long March 2023 $120 calls on Apple, short January 2023 $1,160 calls on Shopify, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.