It seems impossible to believe it right now, in the middle of the mess, but there will come a time when 2020’s coronavirus contagion will be a faded memory. That time is well down the road to be fair. This pandemic seems to be far more disruptive than the previous outbreaks like SARS or the swine flu, especially in the U.S. But nothing lasts forever. This too shall pass. Still, it’s proven a major test even for the staunchest long-term investors.

With that as the backdrop, here’s a look at three growth stocks built to eventually overcome the near-term effects of COVID-19, and continue forging ahead into the future. That certainly doesn’t mean they’re immune to other headwinds that are sure to surface in the meantime. But these companies are built on models that ultimately prove timeless.

1. Amazon.com

It seems obvious almost to the point of being cliche, but Amazon.com (NASDAQ:AMZN) isn’t a 50-year pick based on what it’s doing well right now. It’s a lifetime holding rooted in what it will probably be doing in the year 2070: That is, dominating whatever markets it chooses to enter.

While Amazon’s share of the e-commerce market is hotly debated and changes from one continent to another, there’s no denying it enjoys a commanding control of the online shopping arena. It’s never just been about selling cheap goods to millions of buyers at great prices, though. Amazon’s overarching strategy has always been about quietly becoming the digital centerpiece of your life. In January, the company said more than 40 million people are now using its Fire TV devices. It’s got a couple dozen Amazon Go stores up and running (although temporarily closed due to the coronavirus), with whispers circulating that it could expand them in the thousands. It’s in the grocery store business as well, with big plans on that front, too.

In the meantime, more than 150 million paying Prime customers not only don’t think twice about placing online orders — since shipping is usually free — they don’t think twice about plugging into Amazon Prime’s streaming video library. Coresight Research estimates that Amazon is also now the United States’ most shopped apparel retailer.

What Amazon may look like in the distant future isn’t perfectly clear. But it’s got a decisive lead on many fronts, and strong offerings in even more product and service categories.

2. Microsoft

As was the case with Amazon, we don’t know exactly what software giant Microsoft (NASDAQ:MSFT) will look like 50 years from now. But, also like Amazon, Microsoft is the dominant name in its core market right now. It may not be a player in the tablet space, but Statcounter says its Windows operating system still powers 77% of actual computers in use today. Net MarketShare puts the figure closer to 90%. That means other software as well as hardware companies have to prioritize making Windows-friendly products. This in turn means consumers and companies choose Windows-based machines when it comes time to upgrade, and so on.

The technology giant is hardly relying on its past business models to grow into the future, though. It’s adapting to the new reality of consumer and corporate tech. That’s cloud-based software, which drives recurring subscription revenue rather than one-time purchases of software. Microsoft reported it now had more than 37 million subscribers to its cloud-based productivity suite Office 365 (recently renamed Microsoft 365), but much of the revenue produced by its Intelligent Cloud unit also comes from service work that’s done on a recurring basis.

And it’s not as if cloud computing is going away. In November, before the coronavirus pandemic took hold, information technology market research outfit Gartner predicted the cloud computing market would grow 17% this year and then accelerate in 2021 and 2022. That growth has since been disrupted, but the technological underpinnings are likely still in place.

Point being, Microsoft has a long runway into a future that plays into the hand it’s holding.

3. Shopify

Finally, add e-commerce enabler Shopify (TSX:SHOP)(NYSE:SHOP) to your list of names built to thrive well into the future.

Admittedly, it’s the least established name of the three. It’s also ultimately competing with another name on the list — Amazon. But it’s a much-needed alternative to Amazon that smaller companies are increasingly appreciating and using. Shopify’s top line of $505 million for the last quarter of 2019 was up 47% year over year, capping off a year in which total revenue of just under $1.6 billion was also up 47%.

That sort of growth is made possible by Shopify’s business model. It’s not an online retailer. Rather, it offers tools and services that help companies of all sizes build and manage an e-commerce platform they completely control themselves. This approach allows each client company to custom-build their own solution without forcing any of them to compete with the platform’s owner. Amazon has been criticized in the past for leveraging its third-party sellers to ultimately serve its own interests.

Shopify’s future is less about being the un-Amazon, though, and more about just capitalizing on the shape of things to come. As big as the e-commerce industry has become, Digital Commerce 360 estimates that only 16% of last year’s retailing in the U.S. was done online. That proportion continues to grow steadily, but there’s still a great deal of room for e-commerce to capture a bigger share of the nation’s $3.7 trillion retail market.

The post 3 Growth Stocks to Buy and Hold For the Next 50 Years appeared first on The Motley Fool Canada.

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It’s a bit difficult to believe any company will ever truly thrive again, here in the midst of a global lockdown intended to contain the coronavirus outbreak. Some pundits are forecasting a 50% setback for stocks, while others suggest we’ve already entered a recession whether we realize it or not.

The fact of the matter is, however, capitalism always eventually finds a way. Not only will most companies push their way through the crisis and start to grow again, a handful of names are well-positioned to drive outsized top- and bottom-line growth.

Here’s a rundown of four companies with big-time potential for gains once the impact of COVID-19 finally recedes.

1. Proofpoint provides protection that isn’t optional

Proofpoint (NASDAQ:PFPT) isn’t exactly a household name. The cybersecurity company sells its product on a subscription basis. It’s a crowded arena, and Proofpoint isn’t the biggest name in the business.

In some regards, though, this organization’s smaller size may be working to its advantage. Solely focused on cybersecurity, this year’s as well as next year’s sales are expected to grow in excess of 18%, extending a trend that’s been in place for a long while. Better yet, this persistent progress also means the company’s bottom line has turned the corner. While not yet profitable on a GAAP basis, its losses are expected to start shrinking rather than widening from here.

Perhaps best of all, cybersecurity is one of those things no company can afford to skimp on, recession or not.

2. Amazon’s shenanigans highlight Shopify’s strengths

Shopify (TSX:SHOP)(NYSE:SHOP) was competing with a much bigger Amazon.com (NASDAQ:AMZN) on its own even before the COVID-19 contagion took hold. But, in some ways, the impact of the pandemic may have underscored Amazon’s weakness that Shopify has been quietly exploiting for some time now.

It all boils down to one simple matter: By selling goods from its own inventory of products, Amazon actually competes with the third-party sellers also plugged into its platform. Were it done sparingly to fill a merchandise gap, its selling partners might shrug it off. But the e-commerce giant seems to be using third-party sales data to develop its own best-selling products. Then, in the midst of the coronavirus outbreak, Amazon told third-party sellers of nonessential items they’d have to temporarily find their own warehouse/storage solutions. Amazon was only aiming to meet the dire need at hand by limiting intake to essentials like cleaning supplies and OTC medicines. Still, the move demonstrated just how much control the biggest online shopping platform in the world has over several million merchants.

Shopify sidesteps that prospective conflict of interest by being the exact opposite of Amazon. The organization helps small companies build their own e-commerce presence so they can be fully self-reliant. It’s a niche that is paying off for Shopify.

3. Ionis Pharmaceuticals wins big by thinking small

Odds are good that the average investor couldn’t name even one of the approved drugs Ionis Pharmaceuticals (NASDAQ:IONS) currently markets, let alone all three. That’s not necessarily a bad thing, though. By remaining off the radar and not taking aim at massive opportunities with potential blockbuster therapies, Ionis also faces little to no competition.

It’s a strategy that’s turned out well for shareholders. The late-2016 approval of its Spinraza for spinal muscular atrophy was the first of its kind, while the 2018 approval of Tegsidi as a treatment of the polyneuropathy of hereditary transthyretin-mediated amyloidosis has proven to be another big win for the relatively small biopharma name. Revenue growth hasn’t always been even, but on the whole it’s been plenty impressive.

More growth driven by niche drugs should be in store, too. As fellow Fool Taylor Carmichael explained earlier this year, the European Medicines Agency (EMA) has designated Ionis Pharmaceuticals’ ION373 an “orphan drug” for the treatment of Alexander disease. The designation doesn’t assure an approval, but it does indicate that regulators see an urgent, unmet need.

4. RingCentral dials up growth

Finally, add RingCentral (NYSE:RNG) to your list of prospective monster stocks that could be catapulted higher with the right push.

It’s one of several technology names that moved into the spotlight when millions of people were suddenly — and unexpectedly — forced to work from home yet still communicate with co-workers. The company offers cloud-based collaboration tools, online meetings, and even video conferencing. RingCentral also claims to be the “world’s #1 business communications platform,” and although it doesn’t explain exactly the criteria used to make the claim, there’s no denying it’s racked up plenty of legitimate accolades over the years. Frost & Sullivan, for instance, gave the company its 2019 UCAAS (unified communications as a service) Market Leadership Award.

It’s anybody’s guess how much new business RingCentral won as a result of work-at-home mandates, and certainly, some of these new customers will discontinue their use of online communication tools once people can actually return to work. Other employers are likely to continue using these platforms, however, and RingCentral’s fiscal history confirms it was already doing something right in meeting the needs of businesses even before the coronavirus took hold. This year’s top line was projected by analysts to grow nearly 24%, and next year’s estimate shows a slight acceleration in sales … and earnings.

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As the coronavirus contagion has forced the shutdown of countless small businesses all over the world, many now find themselves hungry for cash.  Now e-commerce service provider Shopify (TSX:SHOP)(NYSE:SHOP) is throwing out a much-needed lifeline to some of its Canadian users.

Shopify Capital, previously available to U.S. and U.K. customers, will aim to help Canadian merchants using its platform by offering cash advances ranging from CA$200 to CA$500,000, depending on the need and each company’s fiscal history.

The Canada-based company allows small businesses to build their own e-commerce engines, sidestepping other online-selling venues that may be too costly for sole proprietors or other micro-businesses. The company facilitated more than $60 billion in online sales last year, translating into nearly $1.6 billion worth of revenue for itself.

Its intimate link with the 1 million businesses it powers leaves it well positioned to provide the short-term funding many of them need now, though not all of them will be able to plug into Shopify Capital’s resources. Merchants must still apply for what is essentially a loan and repay it from sales made using the company’s e-commerce tools.

Shopify shares surged more than 6% on Monday, perhaps driven in part by investors who believe serving small businesses in this way will improve its share of the e-commerce market.

The post Shopify (TSX:SHOP) Offers Cash Advances to Canadian Merchants appeared first on The Motley Fool Canada.

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Amazon didn’t exactly paint a rosy picture for the quarter now underway, either. The sales outlook is between $80 billion and $86.5 billion, up from the year-earlier figure of $72.4 billion, but not quite the $87.4 billion the pros were modeling.

It’s not difficult to figure out where the added costs are coming from. Although it’s driving considerable sales growth, Prime’s one-day shipping is costing the company a small fortune, with no end in sight. But that is only one of three details from the quarterly report worth noting.

1. “Free” one-day shipping isn’t free for the shipper

It’s not easy to pinpoint the precise additional cost of the one-day shipping promise Amazon was willing to extend to Prime members earlier in the year. In some cases, goods were already taking only one day to deliver. And at the same time, the option arguably drove additional revenue that wouldn’t have been possible.

To the extent shipping expenses are clearly identified on the company’s quarterly accounting statements, though, they were up more than sales. Total worldwide shipping costs of $9.6 billion were up 46% from the year-ago number of $6.6 billion, while the top line of just a little less than $7 billion was higher to the tune of 24%.

In the same vein, fulfillment costs of $10.2 billion grew 23% on a year-over-year basis. That’s not faster than revenue grew, but it does negate the upside of growing scale; relative costs should decline as an operation gets bigger. Meanwhile, marketing costs grew by 44% to $4.7 billion.

2. Margins on merchandise are shrinking

For years, Amazon had been criticized for making next to nothing on sales of goods via Amazon.com. The organization would argue back that there was a method to the madness: Develop a huge following first, and then better monetize it for greater profitability.

It appeared the company turned that corner in a big way in early 2018. In that year’s first quarter, $1.15 billion worth of North America’s retail sales was converted into operating income, translating into margins of 3.7% (a lot for Amazon, at the time). In the first quarter of this year, international e-commerce almost swung to a profit, only losing $90 million on $16.2 billion worth of revenue.

Now, however, profits on conventional e-commerce sales appear to be moving in the wrong direction again. Last quarter’s revenue of $42.6 billion in North America only created operating income of $1.3 billion, down from Q3 2018’s $2 billion in operating earnings on $34.3 billion worth of sales. Its international revenue is still in the red, too, by virtue of last quarter’s loss of $386 million, and didn’t make any progress last quarter, either.

Again, the scale-up doesn’t appear to be providing the fiscal upside one would normally expect.

3. Amazon Web Services is hitting a fiscal headwind

Finally, Amazon Web Services (AWS) has not only been the company’s big growth engine, it’s been its breadwinner. It still is, too, adding $2.26 billion worth of operating income to the bottom line. That’s 9% better than the year-earlier comparison of $2.07 billion. The unit’s net revenue of $9 billion was up a hefty 23% year over year.

Doing just a little math with those numbers, however, reveals that operating margins for AWS are also starting to shrink — from 31% a year ago to 25% now. It may be a sign that the cloud computing war the company is waging against rivals like Microsoft (NASDAQ: MSFT) and Alphabet‘s (NASDAQ: GOOG) (NASDAQ: GOOGL) Google is starting to take a fiscal toll.

In the same vein, the company’s supplemental information to its quarterly results added some eye-opening detail regarding the purchase and depreciation of all the hardware needed to power its cloud computing: For the first time in years, “free cash flow less principal repayment of finance leases and financing obligations” fell on a sequential basis. Simultaneously, deprecation of equipment and content jumped from $3.8 billion for the same quarter a year earlier to $5.5 billion last quarter, while purchases of property and equipment using finance leases grew 30% year over year to a record $11.8 billion. They’ll still need to be accounted for in the future, though, setting the stage for sizable noncash expenses down the road.

Don’t be overwhelmed by the accounting jargon. In simplest terms, it could be a sign that all the money spent on buying servers and data centers to support AWS is no longer providing the kind of return on investment that it used to — an idea that jibes with last quarter’s narrowing margins for AWS. This may be the proverbial tipping point.

One quarter doesn’t make a trend, but another similar quarter should call into question the true value of Amazon’s heavy spending on ensuring it’s the leader in the cloud computing market.

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At the time, Yahoo’s $1.1 billion acquisition of blogging and social networking platform Tumblr seemed like a brilliant idea. Facebook (NASDAQ: FB), Instagram and Twitter (NYSE: TWTR) were all the rage in 2013, and Yahoo had nothing like it. Tumblr was a chance to gain entry into the fast growing social media and personal publishing market.

Except, it wasn’t. Verizon (NYSE: VZ), which acquired Yahoo in 2017, announced in early August it would be shedding Tumblr altogether. The parent company of blogging architecture outfit WordPress is reportedly purchasing the platform for a scant $3 million. Neither Yahoo nor Verizon itself could ever do anything fiscally meaningful with Tumblr.

The news wasn’t surprising. In the middle of 2016, Yahoo booked $482 million worth of writedowns on its acquisition of Tumblr, adding to a $230 million impairment charge taken just three months earlier. Those writedowns, coupled with comments from some Yahoo executives and then Verizon executives after it bought Tumblr’s parent, made it clear that the blogging brand wasn’t paying off the way it was supposed to.

The debacle is in the rearview mirror now, for better or worse. The lessons learned from the debacle, however, should be remembered by any other organization mulling a similarly sexy acquisition. Investors would be wise to remember these lessons too, just to make sure any highly lauded dealmaking is actually going to be of benefit to a would-be buyer.

Three lessons stand out above the rest.

Understand what you’re buying

When independent of Verizon, Yahoo’s top brass loved the fact that Tumblr came pre-packaged with 300 million regular monthly visitors. More than 120,000 newcomers were signing up every day as well. At a time when Facebook was sporting red-hot growth and Twitter was finally reaching its full stride, Yahoo needed something big to break into the social media space. And, it needed it fast.

Tumblr wasn’t quite what it seemed to be with just a quick glance, however. Aside from the fact that more than 10% of its content was pornographic in nature, comparable levels of the web traffic it faciliated was to or from other pornography websites. To that end, Tumblr’s users were mostly anonymous, making them even more difficult to market to would-be advertisers who need detailed information.

And, Tumblr’s sales teams did end up struggling to market the platform, unable to explain the upside to their customers.

Have a plausible plan

It’s arguably a sub-category of the previous lesson, “Understand what you’re buying,” but it merits a stand-alone mention. That is, dealmaking must be made with a purpose or strategy in mind. Mere access to 300 million users isn’t enough. What specifically can be done to monetize them that isn’t already being done?

At the time, then-CEO Marissa Mayer had what could be technically construed as a “plan.” That two-fold plan was to apply Yahoo’s capacity to personalize web-search experiences to Tumblr’s content and simultaneously leverage Tumblr’s billions of blog posts by adding them to Yahoo’s searchable media. The end result was meant to be a bigger and more powerful marketing machine.

It was never a plausible prospect, however. As John Matthews, managing director of investment banking firm DeSilva+Phillips, bluntly explained in 2017 when it was clear the pairing had flopped, “Tumblr wasn’t designed by its founder David Karp to really be an ad-monetization platform.”

Consider doing it yourself

Finally, the idea of acquiring an established brand with millions of users already in tow seems like a savvy move on the surface. Speed is critical when rival social media sites are rapidly becoming a habit for consumers.

The easy and fast way isn’t necessarily the best way in the long run, however. Yahoo may have been better off using its then-800 million regular monthly users as the foundation for a new social networking option.

What that might have looked like is anyone’s guess. Social media was still young and undefined at the time, and Yahoo could have introduced a new spin on the idea. Or it could have created a clone of Facebook that integrated with Yahoo accounts. Or, it could have launched a hybrid of Twitter and Facebook. It didn’t do any of those things, though, and missed an opportunity to more meaningfully monetize a few hundred million proven Yahoo fans that had grown accustomed to — and even responsive to — ads.

What have we learned?

It’s admittedly easy to look back at the ill-fated acquisition now and pinpoint what should have been a red flag then. Even so, an honest examination at the time likely still would have led to the recognition of inevitable problems. Not enough investors wanted to see it at the time, though. The prospect of a revitalized Yahoo was simply too intoxicating.

Regardless, the Tumblr disaster’s lessons are still worth bearing in mind today, and forevermore. Too many acquisitions that lack real synergy potential are still being made just for the sake of making an acquisition.

Your job as an investor is to spot the unmerited buzz of proposed deals, even if few others can when they’re announced.

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