Cryptocurrency took the market by storm last year, but in 2022, crypto performance has been more than underwhelming.
Bitcoin, still the largest of any crypto, is down 56% year to date, and Ethereum has fallen 58%. In addition to the bubble bursting in crypto, the blockchain-based currencies have yet to provide significant functionality in the world. Perhaps the biggest spectacle to come out of cryptocurrencies so far is the non-fungible token (NFT), but those have proven to be a bubble as well.
If you’re looking for investments with truly monster growth potential, keep reading to see three stocks that can outperform any cryptocurrency.
The leader of Connected TV
Roku’s (ROKU) performance this year has been bad enough to make even crypto investors blush. The stock is down 77% this year and has declined steadily throughout 2022.
The company is getting hit simultaneously by a macroeconomic slowdown in ad spend, which digital ad giants like Meta Platforms (META) and Alphabet (GOOG) just confirmed, and a poorly timed ramp in investments. In the second quarter, Roku’s operating expenses jumped 73% even though revenue only increased 18%, and the company guided to just 3% revenue growth in the third quarter.
A large jump in spending on research and development and sales and marketing was the primary reason for that discrepancy, and its GAAP loss of $110.5 million helps explain why the stock has fallen so sharply.
However, Roku is still the favorite in Connected TV, the ad-based streaming format that’s gradually displacing linear TV. Active accounts continue to grow, reaching 63.1 million in the second quarter, and the company typically claims one third of ad revenue from streaming partners in its app.
That represents a huge opportunity going forward, especially as streaming leaders like Netflix (NFLX) and Disney (DIS) prepare to launch their own advertising tiers. The stock will be challenged as long as the macro headwinds in the ad market persist, which could last at least a few quarters, but it’s poised to be the dominant television of the next generation. That would make it worth much more than the $7 billion in market cap it’s valued at today.
A wide-moat approach in e-commerce
Like Roku, Etsy (ETSY) has struggled this year due to the overhang in e-commerce. After online shopping boomed in 2020 and 2021, people have taken a break this year, spending instead at brick-and-mortar stores and on services like travel and restaurants.
The stock is down 54% year to date, and the company actually reported a slight decline in gross merchandise sales in its second quarter, showing that spending on the platform fell.
However, there are a number of reasons why the company still has a lot of growth ahead of it.
Etsy has carved out a unique niche in e-commerce, with a network of 7 million independent sellers making unique artisan products and selling vintage gear like apparel. If you’re looking for a unique product on the internet, Etsy is the go-to destination. The brand also fits the era of remote work and millennial culture well, as that generation has expressed a preference for authenticity when shopping.
Management has extended its strategy to other e-commerce platforms, acquiring Reverb, a marketplace for musical instruments, Depop, a vintage and used clothing marketplace, and Elo7, a business similar to Etsy, based in Brazil.
Those marketplaces give the company growth opportunities beyond Etsy.com, and both the stock and the overall business should recover when the macroeconomic climate improves and Etsy rolls off the difficult comparisons from 2021. The company is highly profitable, with adjusted EBITDA margins in the 25% to 30% range.
A software company focused on a huge market
Okta (OKTA) is best known as a maker of cloud identity software, and the company offers the most comprehensive suite in the sector. It helps businesses allow their employees and customers to log in and stay connected seamlessly and securely.
Like other software stocks, Okta shares have fallen sharply this year, down 75%.
In its most recent earnings report, the company acknowledged it had faced challenges integrating Auth0, the customer identity software company it acquired last May, which led it to dial back guidance. Because of that and macroeconomic headwinds, the company also stepped back from its fiscal 2026 target of $4 billion in revenue and $800 million in free cash flow.
However, the company is taking steps to replace the salespeople it lost in the integration and get them trained. It also said there was some confusion among customers and its sales force about which product, Okta or Auth0, to sell to which customers. The company has solved that problem by using Okta customer identity as an add-on for workforce identity. For new customers, it will pitch Auth0.
Looking ahead, Okta still has a huge growth opportunity ahead. It’s targeting an $80 billion addressable market in identity access management, which compares to its revenue of less than $2 billion a year today. The company has also grown revenue by at least 36% every quarter since it went public in 2017, and it’s committed to controlling costs in the second half of the year to deliver improved profitability.
With its market cap now less than $10 billion, Okta could easily be a multi-bagging stock if it executes on the growth opportunity in front of it.
— Jeremy Bowman
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Source: The Motley Fool