In this episode of Industry Focus: Tech, Dylan Lewis and Motley Fool contributor Brian Feroldi take stocks of the tech sector through 2020 and highlight some of the best performing companies in the industry. They talk about the megatrends which propelled the stocks forward. There are some stocks which investors may already know and some they may be unfamiliar with. Dylan and Brian provide details on each of the stocks, talk about their future growth prospects, and much more.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on December 18, 2020.
Dylan Lewis: It’s Friday, December 18th, and we’re talking about the breakout tech stocks of 2020. I’m your host, Dylan Lewis, and I’m joined by Fool.com’s main mega mister of momentum mounted misunderstood multi-baggers, Brian Feroldi. Brian, how’s it going?
Brian Feroldi: Dylan, this is our last Tech show of 2020; which means 2020 is almost over.
Lewis: [laughs] I know, it’s kind of mind-bendy when you think about it, the way the schedule falls, because I think the Friday show and the Monday show generally wind up getting slightly less than 52 episodes a year, just because of the way the holidays tend to fall. And in this case, yeah, for us to be two weeks out from the end of the year, and this be the last episode is kind of wild. But Christmas on a Friday, we won’t be doing a show then, and then New Year’s Day, the 1st, on a Friday as well. So, this is it.
Feroldi: That’s right. Homestretch of this pandemic, and I welcome it with open arms. Hopefully better 2021.
Lewis: I think a lot of people are going to be very happy to turn the calendar page [laughs] at the end of December. You know, whether it’s one of those day-by-days or one of those monthly ones, either way, hopping into 2021 is going to feel very good. But we can’t go to 2021 without first looking back at the year that was in 2020. And specifically, Brian, today on today’s show, we are going to be looking at the best tech stocks of 2020.
Tech, generally, just a sector that exploded this year. So many of the megatrends that have been pushing a lot of the companies, that we often talk about on the show, forward came front-and center and really were [laughs] — whether it’s e-commerce, payments, stay-at-home type things like gaming/social media, basically, if you had any element of tech in your business, you were probably doing OK. Which is, you know, in stark contrast to a lot of other industries this year.
Feroldi: 2020 was by far the weirdest investing year I’ve ever been a part of, and I’ve been investing in the market since 2004. And if the listeners have learned anything from 2020, I hope it’s this, don’t listen to predictions. Nobody, nobody would have predicted anything about 2020 accurately. So, it’s a time of year when you’re going to see prediction after prediction on the news, I hope 2020 has taught you to ignore them all.
Lewis: Yeah. And I think it’s also been a very humbling year in a lot of ways, because I don’t about you, Brian, but I wound up putting together a pretty good year for my portfolio, one that frankly is probably going to be the best year I ever have as an individual investor. It’s going to be hard to top just because so many tailwinds were pushing so many of the stocks that I own forward; and I’m overweight in tech. And you know, in some ways I was right with some of those businesses, but I had no foresight to know that all of these megatrends were going to be pulled forward, all this growth was going to be pulled forward in this year in particular.
Feroldi: There was no way to foresee any of that. And to your point, like you, my portfolio does have a tech bend to it, so 2020 was an outstanding year for my portfolio. But really, it’s amazing to think, if you were given the unemployment numbers or any details about what was about to happen in 2020, it’s crazy to me that the Dow Jones Industrial Average up 9% year-to-date, S&P up 17%, and wait for it, the Nasdaq up 47%. Those are outstanding [laughs] numbers for any year, let alone the backdrop of 2020.
Lewis: Yeah. And just as context, you know, typically when we’re talking about long-term returns and compounding, if you’re trying to make reasonable estimates about what the stock market might be able to grow your wealth into and you’re talking about the S&P 500, we’re looking at, like, a total return annualized of somewhere between 7% and 10%, Brian. So, just right off the bat we’re way above that, if you’re looking at the S&P 500; and the Nasdaq just absolutely crushing that.
Feroldi: Yeah, the Nasdaq essentially had four good years of returns in one year. So, if you’re listening to this, I hope that your portfolio shined in response to that.
Lewis: Yeah. And you know it just reinforces stay invested when you can. You know, put the money in there that you don’t necessarily need any time soon, it makes it a lot easier to stomach the volatility that we saw this year, because it would have been easy to look at things in March and April and say, I’m out, you know, I’m hopping out of that thing. And you would have wound up missing on all of the things that turned this year green; you would have wound up probably in the red.
Feroldi: Yeah. […] that says, don’t try and market time it’s got to be 2020, because I guarantee you, if I was doing what I was feeling, holy cow! Would I have lost out on a lot of gains.
Lewis: Yeah. And this was a particularly good year, Brian, for stock pickers, you know, people who are owning individual companies in their brokerage accounts. We’re going to be detailing six of the best companies in tech in terms of returns for 2020. And we’re going to be doing some filtering here, you know, we typically aren’t talking about micro-cap businesses, we’re generally looking at companies that are on major exchanges. So, you’re not going to be hearing about any microscopic $20 million business that put up 1,000% returns. But I think what is fascinating, in looking at the list that we put together for the show, Brian, is the business that you would have expected to be front-and-center in the top of the tech returns, Zoom Video, doesn’t even make the cut.
Feroldi: That’s incredible. Because Zoom had a phenomenal year, up 480%. But to your point, it didn’t make the cut. And we did massage the list a little bit, as you said, any given year, there’s always some penny stock that no one has ever heard of that puts up 1,000% gain. For the most part, the companies that we’re going to talk about, not only was the minimum return 530%, but a lot of these businesses, investors actually should know.
Lewis: Yeah. And that first one, why don’t we kick it off right there, 530%. This is coming in sixth place, which I think anyone would be happy with 530% [laughs] year-to-date returns, is Jumia (NYSE:JMIA). And I’m sure that some of our listeners are familiar with this one; commonly referred to as the Amazon of Africa. We’ve talked about it on the show before, I know it’s gotten play on Motley Fool Live, I remember a livestream before.
And really, Brian, I look at this business and I think a lot of people had some pretty big expectations for it. The e-commerce model is something that we’ve seen play out fantastically in the United States. I mean, Amazon is really the posterchild of big tech. But we’ve also seen this model work in South America, with companies like MercadoLibre. A lot of people had a lot of conviction around this model working in Africa. And typically, when you see something work in a couple of different places, you know, you increase your confidence. So, there were already some big expectations here. This is a high value, kind of, growth story. And that story, man! Did it [laughs] come to fruition in 2020.
Feroldi: It just shows you, the move away from physical retail toward online is massive and it’s global. And companies like MercadoLibre, companies like Sea Ltd, like Alibaba, like Tencent, it’s a global phenomenon, and there are so many ways for investors to play the trend, and Jumia is definitely one of them. This is not a company that I know well, but after a 500% return, I’m going to start digging in.
Lewis: [laughs] And I’ll say, this is the one I’m kind of kicking myself on, because I had meant to just buy that small position, that tracking position, because there are a lot of things that are pretty serious risks and threats with this company, but it’s so compelling as an investment thesis. And I’m sure there’s going to be some people that look at these numbers, Brian, and say, well, OK, I’m seeing +500% returns, but I’m looking at their financials and they actually posted declines year-over-year their three most recent quarters, [laughs] what gives?
And I think that this company had a really curious 2020, because for a world-beater stock, you’d be expecting, particularly an e-commerce company, just crazy growth rates, topline growth in the double, maybe even triple digits; that didn’t happen here. But that’s because this company went through a major transformation. They went from being a lot of first-party transactions to third-party transactions on their platform. And so, really becoming more of a platform and less of a seller. And that’s a much more scalable business long-term, it’s also a much more profitable business long-term. And so, if you look at their financials, their gross margins moved from the mid-30%s in 2018 to nearly 70% in 2020; that’s a huge part of why the stock flew as high as it did in 2020.
Feroldi: Yeah, we’ve seen lots of software companies, Dylan, make the transition to the SaaS model, and when you do that, there’s always short-term revenue pain. It seems like Jumia is doing that, to your point, by moving from the low margin first-party sales to the higher margin third-party sales. If they can do that successfully and that brings a doubling in the gross margins, I can understand why investors are excited.
Lewis: Yeah. And this is one of those, it’s a profitability-oriented move, but people will say, well, you know, you guys don’t seem to really want businesses that are orienting themselves toward short-term profitability. And this is something where, I think, it’s more of a business model profitability move than them deciding we need to start making cash right now. And so, I think this is management acknowledging, this is a much more scalable, much more lucrative way to run this marketplace; five, 10 years from now it’s probably going to be better for us to have done this. We’re going to eat this pain short-term.
But really, if you think about them being able to do that, become some of these other names that we’ve talked about, Brian, there’s still a lot of growth ahead of this company. It’s a $3 billion business right now, even to go to one of the other companies we talked about — MercadoLibre, a $80 billion company. Now, MercadoLibre does a lot more right now than Jumia does. They have a lot of fintech operations, and that’s really becoming a driving force behind the stock. But again, when you have this type of marketplace model, you can also layer those things in, you can follow the playbook that so many other companies have adopted, because we know it works.
Feroldi: That’s great. And I think that’s an excellent point about this still being a $3 billion company. If their model does work long-term, does it really take a huge leap of imagination to think that this could be a $30 billion company one day. I mean, to your point, MercadoLibre, $80 billion. Sea Ltd., almost $100 billion. So, there’s definitely upside potential if the model works.
Lewis: Yeah, you might just need to adjust your earnings expectations [laughs] and your year-to-date expectations for the next couple of years; tough to match that one going forward. And really, I mean, the same for the second company that we’re going to be talking about, Brian, eXp World Holdings. You did the homework on this one; what’s the story?
Feroldi: Terrible name, first off, let’s acknowledge that; it is called eXp World Holdings. And I will say that this was a stock that Jason Moser and Matt Frankel covered on Industry Focus back in October. So, this is a cloud-based provider of real estate brokerage services. So, they allow brokers and buyers to access a huge pool of agents across the country. The model here is very attractive. If you are a real estate professional, you can sign up with them, and you actually can make more money by selling through their platform then you can with, say, a local brokerage company.
In response to that, brokers have been flocking to this platform. There’s more than 36,000 real estate professionals now that are customers or plugged into eXp World Holdings brokerage network. That number was up 56% year-over-year. And we know that 2020 was just a red-hot year for real estate. In the first-half of the year, [laughs] everything shut down and real estate transactions came to a crawl. In response to that, we’ve seen huge migration away from cities and just massive demand in rural areas and suburbs, and eXp is really taking advantage of that. When you combine their differentiated model with their growth in brokers, we saw revenue double, up 100% last quarter to $564 million. Gross profit more than doubled to $47 million. And the company cranked out $15 million in net income.
So, given the model here, the clear vote among the brokers and the huge financial gains, understandable why the stock was up 570%.
Lewis: Yeah. And if you think about the tailwinds for businesses that have exposure to the real estate market. You know, low interest rates certainly help, and I don’t think those are going anywhere anytime soon, based on what I’ve been reading come out from the Fed. So, you know, that catalyst is going to stick around for a little while for them.
Feroldi: And this is still, like Jumia, a pretty small company in the grand scheme of things. This is a $5 billion business. For comparison, a company like Zillow, not a direct one-to-one comparison, but in the rough same area, Zillow is a $30 billion business, and still growing very rapidly. So, once again, this is a company that I will be digging into, because if the model here works, and the numbers here clearly indicate that it does, there could still be a lot of gains ahead.
Lewis: You know, that’s all good and well, Brian, but those are 500% returns [laughs] we are talking about. You know, it’s nice, we put them out there. But I think we need to set our sights a little bit higher. And the next stock does that. A 679% year-to-date return, and that’s Digital Turbine, ticker is APPS. Admittedly, Brian, a company I wasn’t super-familiar with prior to doing the homework for the show. This is a software company, and the ticker here says it all, it helps apps get discovered. They work in mobile content discovery. They have an on-device media platform, specifically for mobile. They partner up with device-makers and create opportunities for people who work in apps and content to have their stuff found.
Kind of an interesting business, a little bit of a hard one to wrap your head around and visualize. But they have over 40 partnerships in the mobile space, about 500 million devices currently have a Digital Turbine software on there, and the company has 10 million daily active users for its content media software.
One of most encouraging things for me with this, aside from all the tailwinds is, 60 million of those 500 million downloads happened in the last quarter alone. So, a huge part of the growth story is happening very recently. And it signals to me that this is just going to continue in the coming quarters. They’re kind of at that inflection point and a lot more growth ahead.
Feroldi: This is a company that if you look at any stock chart, I mean, this went from trading at about just under $2/share to currently $58. And actually, it’s up another 9% today; don’t know why that’s happening, but hey, Digital Turbine shareholders are having another great day. And when the company is in the market that it is, and we’ve seen explosive growth like this, understandable why investors are excited.
Lewis: Yeah. 2020 was a pretty good year for the business. This is something that is kind of at the intersection of a lot of major trends. They are mobile first, which is obviously great, we have seen the effectiveness of digital ads, and the middleman business is a very good business to be in. It can be very high margin if you do things correctly. This is always going to be a growth stage story, and certainly will be for the next couple of years, but even now they have about $200 million in trailing 12-month revenue. If you’re looking for the reason why [laughs] we saw some incredible returns this year, Brian. They went from year-over-year growth in the 30% range to 93% year-over-year growth and then a 116% year-over-year growth in the past two quarters. People staying at home, people doing a lot of things on their phones, those are generally going to be good for this business. You couple that with them deepening their relationships in the OEM space, and I could see that growth continuing.
Feroldi: Yeah. This is another company that, despite the huge gains, is still a roughly $5 billion company. I don’t know what kind of long-term growth potential this company has, but if it’s substantial, like we saw for eXp and Jumia, there could be reason to believe that this trend can continue.
Lewis: Yeah, and it’s kind of at an interesting point with valuation, right? $5 billion business, $200 million in trailing 12-month revenue. 25X sales is not insane for a company that’s posting [laughs] triple-digit growth. You know, I think one of the big existential questions in tech for 2021 will be, what do we do with these growth rates? [laughs] You know, we’ve seen some crazy adoption in 2020, how do we even set our expectations for a semi-normal or back-to-normal existence; you know, what does it look like for these companies? So, I think that that is something that remains to be seen.
I need to do some more homework on this one before it’s a watchlist worthy stock for me, but certainly an interesting story in 2020.
Feroldi: 2021, to your point, Dylan. I mean, we’ve seen so many things that could be masking weaknesses in businesses, because stock prices are on the rise, and if you’re just in the right industry, your revenue has just exploded. I really like what you said there, because 2021 is going to be the real tester of a year to see, was this a one-time growth bonanza or is the company permanently set up for success? That would be something interesting to watch.
Lewis: [laughs] Yeah, that’s the thing about those step-changes in growth, right, [laughs] is, it’s really wonderful for those first three or four quarters, and then you start running into them for comps [laughs] and you have to figure out are we able to continue growing at this clip or did this just, kind of, pull all this stuff forward in a slightly more mature business than we would have been a year or two prior?
Brian, thinking about the megatrends for 2020, our next stock is front-and-center. I mean, you know, we have all these people working from home, we have a much more growing acceptance of remote work and less rigid work environments. Fiverr (NYSE:FVRR), our next stock, is at the intersection of that.
Feroldi: And this is a stock that we’ve highlighted on the show before, most recently we talked about it on November 6th. This is a platform that connects freelancers with businesses that are interested in hiring. And Fiverr has dozens upon dozens of categories. If you know anything about software development, marketing, social media expertise, SEO expertise, Shopify, translation, if you need a book cover, etc., etc. If you have skills to sell, Fiverr has become a great platform to go to sell them.
Prior to talking about Fiverr, both of us talked about Upwork (NASDAQ: UPWK), which we both thought was the market leader in the industry. And I know I for one was like, why isn’t this company growing faster? The answer was Fiverr. Fiverr is really the company that has attracted, has become the go-to platform in many ways, and while it’s still smaller than Upwork from a revenue perspective, it is just posting outstanding revenue growth.
So, last quarter the company’s topline grew 88% to $42 million. This is an extremely high margin business with a gross margin of 84%. It is pumping out free cash flow and it predicts that for the upcoming quarter it’s going to post another 77% to growth. So, this is a very exciting company that I actually took a position in in 2020.
Lewis: This one is a tough one for me to talk about, Brian, because I am an Upwork shareholder, [laughs] and I feel like all of the gains that Fiverr has enjoyed has been, you know, in some ways at my expense. But Upwork has thankfully gotten its act together a little bit in the past couple of quarters and seems to be on a slightly better path going forward; it’s a marketbeater again at this point. But, yeah, I think Fiverr’s growth is just incredible, and shows that it may not be first right now, but it will be very quickly if this trend continues.
Feroldi: It’s all about revenue growth, right? And to your point, Dylan, Upwork really has gotten its act together. It’s a company that was doing low double-digit revenue growth, and more recently that number has increased. It’s going to be a testament to say, well, is that [laughs] a one-time blip or is that something that’s going to play into 2021? I don’t know, but we’re going to find out.
Lewis: Yeah. And I think — you know, we’ve talked about the space a couple of times now on the show, this is not necessarily a winner take all space, particularly with two businesses that are of this size operating here together. I think you could probably put money on both and just say, you know, I’ve got a pretty good setup for the future of work and decentralized workforces, and just walk away, you know? [laughs]
Feroldi: That’s not a bad strategy right there. Diversification can be your friend when you’re unsure about which is going to be the winner. But I think it’s a category that will produce returns for investors.
Lewis: So, 2020 kind of stoked the fire a little bit for Upwork, same goes for our next stock, Brian, Overstock (NASDAQ:OSTK). And this is kind of one of those old internet names that [laughs] became relevant again in a big way in 2020.
Feroldi: You should be scratching your head if you have not heard the story that is Overstock in 2020. This was an also-ran e-commerce company that was just down on its luck for years and years and years, revenue was declining. And in the age of Amazon, I mean, do we need a company like Overstock? Well, they came back with [laughs] a vengeance in 2020. This company has returned 822%.
Now, a big reason for that is because, I think, of some hype related to their ancillary businesses, we’ll get into those in a couple of seconds, but what surprised me was Overstock has made a huge push into the home furnishings market. We saw that Wayfair had a really sharp rebound from its 2020 lows, and people are now getting very comfortable with ordering big, bulky furniture online. Overstock is pushing hard to become the No. 2 player in that market, and it’s trailing Wayfair, but it is making up ground. I was surprised to see that home furnishings actually account for 92% of this company’s revenue. And they actually reported a 140% growth in new customers over the last year. Those numbers are [laughs] very impressive, especially since it’s not like Wayfair is hurting right now.
Lewis: No, it’s been a pretty good stock to own as well. It didn’t make this list, but has been an incredible performer.
Brian, I kind of think of Overstock as that friend who you don’t hear from too often, and when you do, it’s like, he’s hiking in Chile or, you know, [laughs] like, she lives on the West Coast now, and you’re like, wait, what happened? And a big part of that is, they had this push into blockchain and cryptocurrency a couple years ago that sent the stock on a frenzy. It was kind of when everyone was dipping their toe into blockchain. And I think a lot of people at the time looked at that and they were like, what is this company doing? Strategically, how does this fit in at all? It isn’t a major contributor, but it is a part of the thesis, I think, at this point.
Feroldi: That’s how they are really trying to brand themselves. I mean, make no mistake, for right now they are still an e-commerce company focused on home furnishing, that is the vast majority of their revenue, but they are trying very hard, and I would argue even successfully, to brand themselves as a blockchain and crypto company.
So, they have a trading platform called tZERO that allows users to trade in cryptocurrencies, but management actually sees huge potential for this platform beyond cryptocurrencies. They’re calling out that they want to use this platform, which is based on blockchain technology, to transact real estate in the private markets, as well as provide a market for private companies to raise capital and talk with investors. That’s an interesting angle if they can do it. But for right now, tZERO is primarily focused on cryptocurrencies.
And if you’ve been following bitcoin at all in 2020, you know that cryptocurrencies are once again red-hot.
Lewis: [laughs] They are. And I think, at least, my perspective over the last couple of years in this company, I’ve just kind of wondered where their edge was. You know, hearing an e-commerce player get into blockchain/crypto and a lot of, kind of, more financial types of transactions, moving away from traditional retail, was kind of a head scratcher for me, because I wasn’t really sure what expertise they were bringing into the mix, and whether they really had an edge over the field, aside from maybe being a name that people recognize. I still haven’t figured that out, Brian, to be honest. I don’t know whether this is, like, a real strategic advantage for them and something that they’re going to be able to become a market leader in. I will say, just as an investor, when I see management teams spreading further and further away from what the business does at core, I do tend to get a little suspicious.
Feroldi: And I think that that is completely valid. I believe when they launched this was, in 2017 or 2018, whatever year that bitcoin just went absolutely crazy and was the talk of every Thanksgiving dinner table, essentially that’s when they made this big push. So, like you, I thought, what are they doing? Is this just a chance to rename themselves as a blockchain to reignite investor enthusiasm? Say what you will, but they seem [laughs] to be deadly serious about this. They have actually set up a VC arm within their company that they use to invest in upcoming platforms that are based on blockchain technology. And they call out investments that they’ve made in companies that help with voting, supply chain management, banking and currency, identification, land tilling, etc., etc. [laughs] So, whether you acknowledge it or not, they think that they are deadly serious [laughs] about blockchain.
Lewis: Yeah. And this is a business that, you know, to-date I’ve just been wrong about. I think I was, kind of, casually dismissive of what they were doing in the blockchain crypto space. Frankly, for my money, it didn’t really feel like they were worth investing in, in the e-retail space either, just because there were, seemingly, market leading companies ahead of them, like, you know, Wayfair and some other e-commerce companies, you know, that don’t necessarily work in the home furnishing space, but seem to have just a better path forward, like, Etsy and Amazon. I’ve been wrong [laughs] so far about this. And I think this company deserves a lot of credit for making things work.
They’re still very much in the early innings, though, of these other businesses, and they’re not really contributing all that much. I think you said 92% of the revenue, Brian, is coming from home furnishings. They have some high growth rates when it comes to some of the stuff they’re doing on the capital market side, but it’s not going to be where they get most of their money anytime soon.
Feroldi: And I don’t particularly think you are wrong for ignoring this company. This company came public in 2002, and up until essentially January of this year, it was a market loser, it was [laughs] down substantially and did nothing but produced bad results for investors. So, if you “missed it,” it’s just because of the performance in 2020.
Lewis: Yeah. And you know, it’s OK to be wrong, [laughs] and it’s particularly OK to say, you know, this is interesting, but I don’t get it. And that’s just been my stance with Overstock. We might be in a spot, Brian, where weirdly e-commerce is the cash cow [laughs] that gives them the ability to do all these other things down the road. I will happily watch that as a spectator rather than a shareholder though.
Feroldi: That seems to be the thesis, Dylan. [laughs] And if they can make it work, my hats off to them. [laughs] I’m probably still not going to ever become a shareholder, but, hey, good for them if they can do it.
Lewis: All right, Brian, our last stock in our roundup here is one that I was not too familiar with, and you did the homework on, Veritone (NASDAQ:VERI), ticker VERI.
Feroldi: Yeah. This is a company that I looked deeply at the documentation that they provide for investors, and I’m still not 100% sure what this company does and what makes it so special, but the stock is up 931% this year. So, I said, all right, well, we got to talk about it.
So, this is a software company that is focused on artificial intelligence and digital advertising. What they do is they seem to specialize in providing an operating system that you can use to look at audio and video and text to derive insights into your company. Now, this was a very [laughs] small company 900% ago, which again, all occurred in 2020. So, I was expecting it to be and also-ran. When you dig in, this company’s customers include ESPN, Microsoft, CNN, the NFL, Fox Sports, CNBC, Bloomberg. So, they are doing something special to attract those kinds of customer bases.
For right now, the majority of their revenue is derived from digital advertising. So, you can use their platform to optimize digital brand campaigns, and that accounts for about a little over half of revenue. However, they’re pushing their platform to be used in a range of use cases and they provide some examples on their website. One of the things they say is, a utility can use their AI system to look at weather patterns to optimize for electricity generation, to basically make that system more efficient.
Another interesting use case is, the NFL can apply their AI software on top of video footage, so that you can actually search that video footage for faces in the crowd or logos in the crowd or objects in the crowd through video footages. Unfortunately, governments can actually use the same technology for Homeland Security purposes.
So, that’s kind of the crux of what the company does. And it is producing some results, so the financials are looking OK. Last quarter, revenue grew 23% to $16 million. The gross margin expanded to 71%. Their AI business is actually growing quicker; it reported 43% revenue growth, and net loss is shrinking.
So, it’s a hard company to really wrap your head around when it comes to just saying, hey, we’re involved in AI, but hey, investors really had a great year in this company.
Lewis: [laughs] Yeah. I like that you highlighted the customers there, Brian. Because my go-to when I am out of my depth and I’m looking at a business is to say, all right, I need some social proof here. [laughs] I need to see that people who know the space well enough or are making investments in the folks that are really doing cutting edge work in whatever industry they’re in, have decided to hop in here. And so, those are big names; that’s definitely reassuring.
And we know you don’t have to look far in The Fool universe for some really great digital advertising plays that have rewarded shareholders handsomely. You know, The Trade Desk, Magnite, obviously, this business works in a slightly different capacity, but any exposure to that means, generally, higher gross margins. And we’ve seen the strength of digital businesses, in general, this year. So, maybe no surprise there.
Feroldi: Yeah. And good for them for having a great year. The numbers that I see don’t — I mean, if you have 23% revenue growth, I don’t see how that translates directly into 900% gain in your stock price, but, hey, maybe I’m missing something here. So, this was one that I looked at and just came away still scratching my head. So, don’t go out and buy it, but hey, doff-clap for the shareholders here.
Lewis: Yeah. And still a small company, Brian; it’s only about $800 million business, even after all of that growth. So, you know, there’s a lot that’s still being priced into this business, and a lot that it could choose to live up to. [laughs] And we actually won, Brian, that if we’re doing the show in the beginning of the year, it would be too small for us to talk about.
Feroldi: That’s right, yes. You have to 10-bag to get on to the $800 million range. So, again, good for them. One of the ones that is the biggest head scratcher for me. But, all right, Dylan. So, we had Jumia, eXp World Holdings, Digital Turbine, Fiverr, Overstock, and Veritone. I want to know, which of these is at the top of Dylan Lewis’ research list?
Lewis: Well, you know, Jumia was there. And this is one of those situations where I should have just bought that first position, because I talked about it, and I think at the time when we did the show originally, it might have been less than a $1 billion business. And you know, to think about what the upside potential is for what is generally looked at as a first-mover on a continent that doesn’t have a massive e-commerce footprint yet. We’ve seen this model play out successfully, it feels like something that is worth a small amount of money as a tracking position. And then you see the results come in, decide whether you want to allocate more. So, I’m mad I didn’t do that. This one is probably at the top of my list for that reason, because I already had the background there, but I do think eXp World Holdings is a particularly interesting business as well.
Feroldi: Yeah, that’s the one from here. My favorite of these six is definitely Fiverr. And I better say that, because it’s the one I’m a shareholder of. But I would say that eXp is a strong No. 2. They really seem to be on fire with the real estate world, and they’re expanding geographically, their platform is profitable, and the real estate market is just massive. So, that’s one that I look forward to digging into more.
Lewis: Yeah. And I think with all of these, you know, we have to remind ourselves, huge run-up, but what we’ve seen historically, Brian, is winners keep winning. You know, quality businesses wind up getting attention. And all of these companies are small companies, none of these are in the tens of billions of dollars in terms of market cap. So, if they are able to continue to grow, continue to gain market share, and that thesis continues to play out, there should be a decent amount of runway for all of them, despite the run-up that they’ve gone on in 2020.
Feroldi: 100% agree. The question will be, is the run-up that we’ve seen one-time driven? And it was because it was beaten down so much and the business just proved to be not as bad as investors were predicting or is the company on an actual long-term trajectory? That’s the homework that investors will have to do, but I think one or two of these companies could have a bright future ahead.
Lewis: Yeah, you never want not as bad [laughs] to be the takeaway. You know, if that’s what winds up being the headline from the earnings release, you know something isn’t good. [laughs]
Feroldi: Hey, if it’s not as bad and it results in a 900% gain, I’ll take it, Dylan. [laughs]
Lewis: [laughs] That’s true. Brian, thank you so much for doing this show with me, and also, just doing all these shows with me in 2020. It’s been such a joy, particularly as we’ve been staying home to continue chatting every week and kicking around these companies.
Feroldi: Right back at you, Dylan. I so enjoy doing Fridays Tech episodes with you; I learned a lot, and had a lot of fun.
Lewis: Well, I hope you and your family have a nice holiday and a Happy New Year! We’ll be back on it again in 2021. Hard to say that, it feels weird.
Feroldi: I know, right, it’s a week from now, but yes, we will be back, I look forward to it.
Lewis: [laughs] Listeners, that’s going to do it for this episode of Industry Focus. If you have any questions or you want to reach out and say, “Hey!” shoot us an email at [email protected] or you can tweet us @MFIndustryFocus. If you want more of our stuff, subscribe on iTunes or wherever you get your podcasts.
As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don’t buy or sell anything based solely on what you hear.
Thanks to Tim Sparks for all his work behind the glass today, and thank you for listening. Until next time, Fool on!