A top aim of investing is to grow your wealth over time to enjoy a comfortable retirement. To do so, it's important to select businesses that cannot just grow steadily, but also remain resilient during tough times. Some key characteristics include having a strong franchise, a sturdy business model, and clear catalysts.
Some companies can latch on to a sustainable trend that helps to power their revenue and earnings. By riding these tailwinds, you can witness the strong compounding of your investment portfolio that brings you one step closer to financial freedom. Such a process takes time, though, so patience is a key attribute you need to enjoy these capital gains.
Here are two stocks that can help to grow your portfolio over the next 10 years.
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Okta
Okta (OKTA 1.31%) is a software-as-a-service (SaaS) company that runs an identity management platform for enterprises. Its core product, Okta Identity Cloud, helps to manage stakeholders' access to a variety of applications hosted by their clients. As organizations become more complex and require different access privileges for staff from different departments or with varying levels of seniority, such access control becomes vitally important to ensure smooth workflow.
The company has grown its subscription revenue steadily over the years, going from $370.9 million in the fiscal year ended Jan. 31, 2019 (FY2019) to $796.6 million in FY2021. For its fiscal 2022 second quarter, revenue and remaining performance obligations (RPO) continued their rapid growth. Revenue jumped by 57% year over year to $316 million, of which subscription revenue grew 59% year over year, while RPO also grew 57% year over year to $2.24 billion. Okta also enjoyed a healthy 124% dollar-based net retention rate based on total annual contract value (ACV).
And there may be more growth to come after Okta acquired Auth0, another identity management platform, just last month. There are opportunities for cross-selling each other's services, launching complementary products, and broadening geographical reach. Okta has identified a large total addressable market of $80 billion comprising workforce and customer identity management. The company's international revenue segment saw revenue doubling year over year for Q2 of fiscal 2022, demonstrating good traction even before the integration of Auth0. Customers with more than $100,000 ACV have also doubled to 2,610 in the last nine quarters; this momentum looks set to continue as Okta broadens its range of services. There are good reasons to believe that the company can carry on growing its market share and top line for the foreseeable future.
PayPal
A leader in the online payments industry, PayPal (PYPL 1.41%) operates a payments platform that connects merchants with their customers. The company has grown by leaps and bounds over the last five years, with revenue nearly doubling from $10.8 billion in the fiscal year ended Dec. 31, 2016 (FY2016) to $21.5 billion in FY2020. Net income tripled over the same period from $1.4 billion to $4.2 billion, a clear demonstration of PayPal's ability to scale its business and improve on its net margin.
The pandemic has accelerated online adoption and led to a surge in e-commerce, which has benefited online payment portals such as PayPal. For the company's fiscal third quarter of 2021, active merchant accounts increased by 15% year over year to 416 million, while the number of payment transactions per active account also went up by 10% year over year. These numbers are a sure sign that PayPal is not just signing up more customers, but that they are also spending more through its platform. Total payment volume was up 26% year over year to $310 billion for the quarter and hit $1.2 trillion on a trailing 12-month basis.
These operating numbers have translated into stronger financial numbers for the company. Net revenue grew 13% year over year to $6.2 billion, while net income inched up by 6% year over year. Free cash flow of $3.9 billion was generated in the first nine months of 2021, and the company ended the quarter with close to $13.3 billion in cash and short-term investments along with nearly $8 billion in total debt.
PayPal continues to improve on its platform's features and is targeting the launch of a financial services app with a host of features including cash management and bill payments. The app also deals with a range of retailers. The company's digital wallet, Venmo, is the most accepted online wallet, and it recently also forged a new alliance with Amazon to enable purchases on the e-commerce behemoth's website and mobile app.
With these catalysts at play, investors should feel confident that PayPal can continue to grow both its user base and earnings.
