Tech stocks seem to be a big thing due to their ability to grow and grow. Nearly two decades after launching, Amazon Inc. still isn’t generating a significant profit for investors and yet people are throwing money into it, seeing it continue to grow in market share. Tech stocks tend to carry this special “growth” mentality for far longer than other companies.
Canada seems to be blessed with two companies that could experience the same growth. Amaya Inc. (TSX:AYA) and Shopify Inc. (TSX:SH)(NYSE:SHOP) are likely going to continue defying gravity and grow more, especially if certain catalysts work out.
Amaya Inc.
What makes Amaya so special is the fact that it is just starting to realize its potential. Amaya is a company that runs online gambling sites. It really started to shoot to the stratosphere when it acquired PokerStars and Full Tilt Poker. These assets were acquired because there is a strong belief that online gambling is an inevitability. It’s not an if, but a when, so Amaya wants to be there, ready to take consumers’ money when it becomes legal.
It is currently dealing with some legal issues due to a belief that the acquisition wasn’t entirely aboveboard, but should the company get beyond that, it will do very well. It has also started to invest money in sports betting, which is a huge market. In 2011 it was estimated that there was US$11 billion betted on March Madness basketball games. That number will most likely grow and Amaya wants to be a part of it.
The next few years should prove to be very interesting for Amaya. It is looking to list on a United States exchange soon, opening up even more trading of the stock. And once gambling is legal in the United States, it will open up a giant market that can generate significant revenue.
Shopify Inc.
Shopify is a platform that helps people launch their own ecommerce sites with significant ease. Rather than having to pay a developer to create a very in-depth platform, you can pay Shopify about US$79 per month plus some basic credit card fees. In days rather than months, you’ve got a fully functional ecommerce platform generating revenue for you.
On average, the company generates about $600 in gross profit from each of its merchants. At a cost of $1,000 in sales/marketing to get that merchant, Shopify is clearly building a platform that will be profitable in the future.
What makes this company risky is the fact that it only recently went public. It is trading $11.41 from its low of $30, which is great if you got in early, but not so great right now. I would wait to acquire shares when the lockout period is over. The lockout period is when insiders are able to start selling their shares. This will create the first moment when early employees are able to generate liquidity, so a lot of shares will appear on the market.
Long term, both have bright futures
The reality is that both companies have bright futures in the long term. They are young tech companies that will be able to generate significant revenue due to their unique business models. And that revenue should, in turn, result in nice earnings for investors.
