You can accomplish a lot in 10 years. You can start a successful business, earn a degree or certification to improve your earning prospects, learn to play an instrument, and more.
But here’s something else a decade of time can do for you: It can help you grow your capital significantly if you invest in the right stocks. Let’s look at two great companies that could turn $250,000 into $1,000,000 — that’s a compound annual growth rate of 14.87% — over the next 10 years: Zoetis (NYSE: ZTS) and Spotify (NYSE: SPOT).
Zoetis is one of the world’s leading animal health companies. It holds an extensive portfolio of nearly 300 product lines for companion animals and livestock which includes vaccines, drugs, parasiticides, etc. Zoetis offers 13 products that generate $100 million or more in annual revenue, and its financial results continue to impress. In the third quarter, the company’s revenue of $2 billion jumped 11% from a year earlier.
Revenue growth rates in the double-digit percentage range are good for a company of this size in this industry. Zoetis also saw its adjusted net income increase 14% year over year to $597 million. Several tailwinds will continue to fuel Zoetis’ growth going forward and help the company generate above-market returns. Population growth, coupled with rising standards of living, will lead to increased demand for various food sources and the medical expertise needed to properly care for farm animals.
Spending on pets, which has increased significantly over the past decade, is also expected to continue its upward trend. According to some estimates, the animal health industry will register a compound annual growth rate (CAGR) of 9% through 2028. Zoetis is not content to sit on its laurels and expects this wind favorable translates into excellent financial results as if by magic. The company actively seeks innovation to stay ahead of the competition.
Although Zoetis does not publicly reveal the inner workings of its pipeline, we can get some clues by looking at various regulatory approvals it has obtained over the past few years.
In February 2020, the company obtained approval for Simparica Trio in the United States, which protects dogs against various parasites. In November of the same year, Zoetis obtained regulatory approval for Librela in Europe. Librela is a product that helps relieve the pain of osteoarthritis (OA) in dogs.
Then, in February 2021, it obtained Solensia’s marketing authorization in Europe. While Librela treats osteoarthritis pain in dogs, Solensia does so in cats. Librela and Solensia have received very positive feedback from vets and have exceeded expectations since their launches, according to management.
More recently, the company announced that regulators have expanded Simparica Trio’s label, which has expanded the use of the parasiticide and will lead to increased sales. Given Zoetis’ track record, the company’s capacity for innovation is evident. And that, combined with the general increase in spending on animal health products, will help this health care stock crush the market over the next decade.
Spotify is the world’s leading music streaming platform. In the first quarter of 2021, it held a market share of 32%, twice that of its nearest competitor. The company continues to show that there is still plenty of growth in this industry, despite the apparent ubiquity of music streaming. Spotify grew its monthly active users to 381 million in the third quarter, 19% more than a year ago.
Spotify’s premium subscribers also grew 19% year-over-year to 172 million. Meanwhile, the company’s revenue increased to 2.5 billion euros (about $2.9 billion), up 27% from the year-ago quarter. And in the end, Spotify turned the net loss of 20 million euros ($22.8 million) recorded in the third quarter of 2020 into a net profit of 2 million euros ($2.3 million) this time.
Spotify has shifted its focus from music streaming to audio streaming of all types, especially podcasts, over the past few years. He invested a lot in this strategy, and this decision paid off. In just three years, Spotify has grown from a minor player in the podcast streaming space to the largest platform in over 60 countries, including the United States, with a library of 3.2 million podcasts.
But the company is still arguably still in the early innings of its podcast strategy, and it continues to take steps to improve its position. In December, Spotify acquired Whooshkaa, a company that offers tools for broadcasters to turn their existing content into monetizable podcast content. The company did not disclose financial details of the deal.
The acquisition was just the latest in a long line of moves Spotify has taken to advance its podcast ambitions. Consider one reason why this strategy will be critical to the long-term success of the business. Spotify must pay royalties to record labels and other music content creators to host, maintain and expand its music library.
These royalties are not cheap and they eat into the company’s margins. But Spotify doesn’t have that problem with its podcasts, and the company can monetize them cheaply, boosting its margins. As it continues to attract more podcasters to its platform, consumers will follow, which, in turn, will attract more podcasters in a flywheel effect – a powerful competitive advantage.
Spotify has lagged the market significantly over the past year as the market has moved away from high-growth stocks. But the company’s adventure in podcasts, combined with its growing competitive advantage, will help Spotify grow its revenue, profits and margins over the next decade and beyond, and that’s why it’s a great stock to consider buying today.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.