For those who needed a friendly reminder, stocks can go down, too. On Monday, the growth-oriented Nasdaq Composite officially dipped into correction territory, with a loss of 10.5% since its Feb. 12 high. Corrections and crashes, as much as we might dislike them as investors, are a natural part of the investing cycle.
Cresco Labs
Marijuana promises to be one of the fastest-growing industries this decade. But there's a pretty big difference in the long-term outlook between the Canadian and U.S. pot stocks. As the largest cannabis market in the world, the U.S. holds a clear competitive edge. That's why U.S. multistate operator (MSOs) Cresco Labs (OTC:CRLBF) is the one I'd term a millionaire-maker.
The great thing about Cresco Labs is it has two fast-paced sources of growth. Like most MSOs, it has a retail presence in a variety of legalized states. But it's not the roughly two dozen operating dispensaries that stand out as intriguing. Rather, it's where Cresco has chosen to build up its presence.
By maximizing its presence in Illinois (10 dispensaries) and Ohio (five dispensaries), Cresco has shown a willingness to go after limited license states — i.e., legalized states that cap the number of retail licenses issued. This minimizes the amount of competition that Cresco will face and gives it a better chance to build up its brands in billion-dollar markets.
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Arguably even more exciting is Cresco's wholesale operations. Although wholesale cannabis produces lower margins than what's found on the retail side of the industry, there's more-than-enough volume to overlook any margin concerns. That's because the company has one of only a handful of cannabis distribution licenses assigned in California, the largest pot market in the world by annual sales. Cresco can place its proprietary and third-party products into more than 575 dispensaries throughout the Golden State — a figure that I suspect will rise annually.
With Cresco Labs expected to turn the corner to recurring profitability in 2021 and outpacing nearly all other MSOs in the sales-growth department, it has all the tools necessary to make millionaires out of patient investors.
Fastly
Given time, edge cloud services company Fastly (NYSE:FSLY) can also put a boatload of money in its shareholders' pockets.
Without getting too technical, Fastly provides solutions to expedite the delivery of content to end users in a secure manner. In the wake of the coronavirus pandemic, we've watched businesses scramble to establish or bolster their online and/or cloud presence. With more consumers leaning online for their resources, it's led to a significant uptick in edge cloud service demand. Since Fastly's operating model is usage based, this sustainable push online is only going to feed its already rapid sales growth.
Admittedly, Fastly faced a host of questions following its third- and fourth-quarter operating results. Bytedance, the parent of top customer TikTok, pulled traffic off of Fastly's network during the third quarter while it was feuding stateside with the Trump administration. Meanwhile, customer growth (as a whole) slowed in the fourth quarter.
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But pull back a bit, and you'll see a different story. Despite the company's aggressive reinvestment, adjusted gross margin in the most recent quarter jumped 610 basis points to 63.7% from the prior-year period. Additionally, dollar-based net expansion rate for Q3 and Q4 was 147% and 143%, respectively.
This implies that existing customers spent 47% and 43% more than they did in the year-ago quarters. These figures don't demonstrate weakness. Instead, they show Fastly's operating model as quickly scalable, with strong customer retention. That's what I'd call a formula for riches in the tech space.
Most social media companies eventually run into a wall when it comes to user growth. Thankfully, Pinterest (NYSE:PINS) isn't like most social media stocks.
All the evidence you need that Pinterest is capable of making you a millionaire can be found in its user growth trends. Last year, with people stuck in their homes due to the pandemic, Pinterest's monthly active user (MAU) count increased by 37% (124 million net new MAUs). But even prior to the pandemic, MAU growth averaged 30% per year between 2017 and 2019. Users are clearly excited about what Pinterest's platform offers, and that's leading to a sizable uptick in ad spending.
What's particularly notable about Pinterest's user growth is that it's almost exclusively derived from outside the United States. Of the 124 million new net users in 2020, 114 million were from international countries.
If there's a short-term downside to this, it's that average revenue per international user is considerably lower than average revenue from a U.S. user. But that's the beauty of Pinterest: The ability to double revenue from international users multiple times this decade is precisely why its growth rate is expected to outpace nearly all social media companies.
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Pinterest also has the opportunity to become a leading e-commerce destination. With its users willingly posting about the products, services, and places that interest them, Pinterest merely needs to keep these users engaged while connecting them with small businesses that cater to their desires. Simply acting as the medium for e-commerce could be Pinterest's ticket to making its investors millionaires.
Square
Finally, fintech stock Square (NYSE:SQ) has all the tools needed to make millionaires out of its investors.
The Square growth story was built atop its seller ecosystem, which provides point-of-sale devices and other analytic tools to merchants. Between 2012 and 2020, the gross payment volume (GPV) traversing its network catapulted from $6.5 billion to $112.3 billion. Admittedly, the pandemic slowed GPV growth in the seller ecosystem considerably in 2020. But in the seven years prior, average GPV growth was 49% per year.
An interesting development within the seller ecosystem is that bigger businesses are now onboard. Businesses that generate at least $500,000 in annualized GPV accounted for 30% of total GPV on Square's network in Q4 2020, up from 24% in the prior-year quarter. Since this is a merchant fee-driven operating segment, big businesses could seriously boost gross profits.
But the millionaire-making aspect of Square is its peer-to-peer digital payments platform Cash App. Square's popular app ended 2020 with 36 million MAUs, which is more than 400% higher than at the end of 2017. Cash App has been particularly popular with millennials and Generation Z, which are using the app to make purchases, investments, and even exchange Bitcoin. Last year, Bitcoin revenue jumped by a factor of nine from 2019.
The jaw-dropping statistic with Cash App is that gross profit per user hit $41 in Q4 2020, which compares to an acquisition cost per user of less than $5.
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Sean Williams owns shares of Pinterest and Square. The Motley Fool owns shares of and recommends Bitcoin, Cresco Labs Inc., Fastly, Pinterest, and Square. The Motley Fool has a disclosure policy.
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