There is a lot you can accomplish in 10 years. You can start a successful business, obtain a degree or a certification to improve your earnings prospects, learn to play an instrument, and much else besides.
But here's something else one decade's worth of time can do for you: It can help you significantly grow your capital if you invest in the right stocks. Let's look at two excellent companies that could turn $250,000 into $1,000,000 -- that's a compound annual growth rate of 14.87% -- in the next 10 years: Zoetis (ZTS 0.88%) and Spotify (SPOT -7.28%).
1. Zoetis
Zoetis is one of the leading animal health companies in the world. It holds a vast portfolio of almost 300 product lines for companion animals and livestock that includes vaccines, medicines, parasiticides, and more. Zoetis boasts 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 by 11% from the year-ago period.
Revenue growth rates in the low double-digit percentage range are good for a company of this size in this industry. Zoetis also saw its adjusted net income increase by 14% year over year to $597 million. Several tailwinds will continue to feed Zoetis' growth in the future and will help the company deliver market-beating returns. Population growth, coupled with increased living standards, will drive higher demand for various food sources and the medical expertise to care for farm animals properly.
Spending on pets, which has increased substantially over the past decade or so, will also likely continue on its upward trend. According to some estimates, the animal health industry will register a compound annual growth rate (CAGR) of 9% through 2028. Zoetis isn't just sitting on its laurels and expecting this tailwind to translate into excellent financial results magically. The company is actively looking to innovate to stay ahead of the competition.
While Zoetis does not publicly reveal the inner workings of its pipeline, we can gain clues by looking at various regulatory approvals it has earned over the past few years.
Image source: Getty Images.
In February 2020, the company earned approval for Simparica Trio in the U.S., which protects dogs against various parasites. In November of that year, Zoetis won regulatory approval for Librela in Europe. Librela is a product that helps alleviate osteoarthritis (OA) pain in dogs.
Then, in February 2021, it earned marketing authorization for Solensia in Europe. While Librela treats OA pain in dogs, Solensia does so in cats. Librela and Solensia have received very positive feedback from veterinarians and have exceeded expectations since their launches, according to management.
More recently, the company announced that regulators had expanded Simparica Trio's label, which broadened the parasiticide's use and will result in higher sales. Given Zoetis' track record, the company's ability to innovate is crystal clear. And that, along with the general increase in spending on animal health products, will help this healthcare stock crush the market in the next decade.
2. Spotify
Spotify is the world's leading music streaming platform. As of the first quarter of 2021, it held a 32% market share, which was twice as high as its closest competitor's. The company continues to show that there is still a lot of growth left in this industry, despite the seeming ubiquity of music streaming. Spotify grew its monthly active users to 381 million in the third quarter, 19% higher than the year-ago period.
Spotify's premium subscribers also increased by 19% year over year to 172 million. Meanwhile, the company's revenue increased to 2.5 billion euros (roughly $2.9 billion), 27% higher than the prior-year quarter. And on the bottom line, Spotify turned the net loss of 20 million euros ($22.8 million) it recorded during third-quarter 2020 into a net income of 2 million euros ($2.3 million) this time around.
Image source: Getty Images.
Spotify has shifted its focus from music streaming into audio streaming of all types, especially podcasts, in the past few years. It has invested heavily in this strategy, and the move has paid off. In just three years, Spotify went from a minor player in the podcast streaming space to the biggest platform in over 60 countries -- including the U.S. -- with a library of 3.2 million podcasts.
But the company is still arguably in the early innings of its podcast strategy, and it continues to make moves to improve its position. In December, Spotify acquired Whooshkaa, a company that offers tools that allow radio broadcasters to turn their existing content into monetizable podcast content. The company did not release the financial details of the deal.
This acquisition was just the latest in a long line of moves Spotify has made to help advance its podcast ambitions. Let's consider one reason why this strategy will be critical to the company's long-term success. Spotify has to pay royalties to record labels and other music content creators to host, maintain, and expand its music library.
These royalties aren't cheap, and they eat into the company's margins. But Spotify does not have that problem with its podcasts and the company can monetize them at lower costs, thereby increasing its margins. As it continues to attract more podcasters into its platform, consumers will follow suit, which, in turn, will bring in more podcasters in a bit of a flywheel effect -- a potent competitive edge.
Spotify has significantly lagged the market in the past year as the market shifted away from high-growth stocks. But the company's venture into podcasts, combined with its growing competitive advantage, will help Spotify increase its revenue, earnings, and margins in the next decade and beyond, and that's why it's an excellent stock to consider buying today.
