A general rule of thumb in the stock market is that the best long-term stocks are almost always aligned with secular growth trends. The biggest secular growth trend of the decade is the massive economic pivot towards a coordinated economy. Consequently, some of the best stocks to buy now are aligned with this mega-trend.
What exactly is the coordinated economy? For an in-depth look, read here. The short of it is that the widespread proliferation of the internet has ushered in an era of unprecedented connectivity and democratized capability. Nowadays, consumers globally are empowered and enabled to do a great number of things they weren’t able to do before. Some examples? Starting an online store, or providing car rides for money, or becoming social media stars.
Indeed, consumers are doing just that. The result? Our economy is building more ecosystems with multiple suppliers, because many people are starting to be able to do what only a few could before. Supply in these ecosystems is subsequently rising. Demand is relatively stable. Higher supply on stable demand means lower prices and higher convenience for consumers.
At the same time, all these new suppliers are going from making no money to making some money. Thus, the coordinated economy produces optimal consumer and supplier outcomes.
What type of companies align with this trend? Platform companies that I like to call “coordinators.” These platform companies provide services which enable this economic shift, by coordinating and providing incentives to the masses to do what only the few could do before.
What are some of the best coordinated economy stocks to buy for the long run? Let’s take a deeper look.
Coordinated Economy Stocks to Buy: Shopify (SHOP)
Perhaps the poster child for the coordinated economy, Shopify (NYSE:SHOP) is fundamentally changing the commerce world by democratizing the selling process.
The story here is pretty simple. The internet has connected everyone, and as such, has enabled anyone to sell anything to any other individual across the globe, either through websites or social media platforms. Shopify is empowering this new generation of sellers by giving them the commerce tools they need to succeed at scale.
And these new sellers are succeeding. Consequently, more and more individuals and small-to-medium-sized businesses are turning to Shopify to power their online selling efforts. Shopify’s platform, in turn, is growing very quickly and not losing any momentum.
In the long run, Shopify will continue to attract small and medium businesses across the globe — and a few big businesses, too, with Shopify Plus. Ultimately, the company will significantly expand its market share in the global commerce world. As that happens, Shopify will produce tremendous revenue and profit growth, the likes of which will power SHOP stock dramatically higher in the long run.
Shopify is all about the direct-to-consumer commerce market, and enabling and empowering anyone to sell anything. Chegg (NYSE:CHGG) is doing the exact same thing in the education market.
Chegg is all about the direct-to-student education market, helping any student to learn anything.
Broadly, the internet has changed the way students learn. Before, a student’s access to information was largely restricted to the physical realm, i.e. what was given to them in class or was available at the school library. The internet, however has democratized information access, so that students now have a universe of information at their fingertips, meaning anyone can learn anything at any time.
But, the internet is messy, with plenty of missing pieces, incomplete solutions and bad information. It has no human support foundation. That’s where Chegg comes in.
Chegg provides an on-demand, digitally connected platform that enables learning in an organized manner, with complete solutions, good information and a human support network of on-demand tutors. This platform includes things like Chegg Study (online textbooks and solutions), Chegg Writing (online writing tool), Chegg Tutors (online tutors) and Chegg Math Solver (an online calculator with step by step solutions).
For modern students, Chegg is the ideal solution. But, the platform only has a little over 3 million subscribers. There are 36 million high school and college students in America, and that doesn’t count any adult learners. Thus, this company is in the first inning of a massive long-term growth narrative, and all that growth over the next several years will push CHGG stock higher.
The company that really kick-started the coordinated economy revolution was ride-sharing giant Uber (NYSE:UBER). Although the company has had a rough start on Wall Street, investors shouldn’t underestimate this company’s tremendous long-term growth prospects through the coordinated economy.
Long story short, on-demand transportation used to be limited to taxis and black cars, or professional drivers providing driving services. Uber democratized that whole industry by leveraging technology and incentives to allow anyone with a car to provide driving services. Supply in the market surged higher. Ride prices fell. Wait times fell, too, while an entire generation of drivers was seeing new income.
Inevitably, this growth narrative is threatened by the autonomous vehicle shift. At some point in the not-too-distant future, autonomous vehicles will become the norm on the roads. When they do, Uber will have to pivot from using human drivers to using AVs. This is a risk, since Uber isn’t the one making the AVs, so some believe that the AV-makers like Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Waymo will ultimately become the future Uber.
That doesn’t make sense. Ride-sharing is much more than just cars. It’s the logistics behind how those cars are connected; where those cars need to be and when; and where/when riders need rides. Uber understands those ride-sharing logistics on a global scale better than anyone. As such, the most likely outcome here is that companies like Waymo provide AVs for Uber, which then deploys them globally as part of a self-driving taxi service. Thus, risks to Uber are overstated, and the long-term growth potential here is worth buying into after the stock’s disappointing Wall Street debut.
One of the bigger names on this list is Netflix (NASDAQ:NFLX). On the surface, Netflix may not seem like a coordinator. But to label this company as just a streaming service misses the big ideas which are powering Netflix to rapid global adoption.
The important thing here is where the supply of Netflix original content is coming from. In short, much of it is coming from a new generation of young and relatively unknown actors and actresses that likely wouldn’t have been able to break through in the original Hollywood model. That’s because Netflix is democratizing the entertainment industry by utilizing relatively unknown yet surprisingly talented young actors and actresses to pump out an exceptional and unprecedented amount of content.
The result? All this new talent is producing an unparalleled output of content — Netflix released nearly 350 originals last year, while Disney (NYSE:DIS) released 10 movies. All that content brings in millions of new subscribers every year. And the rapid rate of production keeps those subscribers paying up every month.
In other words, Netflix has leveraged the coordinated economy to produce an exceptional output of content on its platform, so that its subscribers are never bored. From this perspective, Netflix’s position as a coordinator in the entertainment industry is critical to its long-term success.
Another big-time stock on this list is Facebook (NASDAQ:FB), which broadly can be viewed as the world’s largest coordinator.
Facebook’s mission from the onset has been connecting people across the world. They’ve done just that, and in so doing, they’ve democratized a great number of processes. On the social front, no longer is you friend circle limited to people around you. You can now stay in touch with people across the globe. On the content front, almost anyone can publish any thought or photo to Facebook or Instagram, and pretty much anyone can see that content. Meanwhile, Facebook has likewise democratized the spread of information across these platforms, and is now trying to pivot into democratizing e-commerce.
Broadly, then, when Facebook created a digital town square with over 2 billion people, it inherently opened the door for itself to be a coordinator across multiple verticals. They’ve done just that, and continue to do so today.
Consequently, so long as people continue to share thoughts, messages and media content in this town square, Facebook will maintain high engagement, ad dollars will follow that high engagement, and the stock will run higher on steady revenue and profit growth.
In the world of payments, Square (NYSE:SQ) has turned into a coordinator by enabling and empowering small- and medium-sized businesses to accept payments of all forms.
Before Square, there were a ton of smaller businesses out there who were “cash only,” mostly because they couldn’t afford the infrastructure to support other payments. But as the consumer has increasingly migrated away from cash, the inability to accept other payments really hurt those smaller businesses. They needed to pivot to accepting non-cash payments, but current infrastructure solutions were chunky and expensive. Along came Square — a simplified, affordable and all-in-one non-cash payments facilitator. These businesses adopted Square machines in bulk, and now, Square has built an payments empire.
In other words, much like Shopify is giving them the commerce tools they need to succeed in the coordinated economy, Square is giving them the payment tools. And, because the retail world is becoming increasingly decentralized, Square’s addressable market is becoming bigger by the day.
Consequently, over the next several years, Square will continue to add merchants in bulk to its platform. Gross payment volume will continue to rise rapidly, as will revenues. Margins will continue to improve with scale. Profits will run higher, and that will ultimately push SQ stock higher, too.
As of this writing, Luke Lango was long SHOP, CHGG, UBER, NFLX, DIS, FB, and SQ.