We’ve all heard the term millenial in the past, and it’s a term that refers to a rather large group of consumers. In fact, everyone with birth years ranging from the early 1980s to the early 2000s, millennials represent the largest population group in the United States and most other developed nations.
This large group of individuals represents an incredible opportunity for investors. The reason is simple, millennial spending is expected to start climbing and continue to do so for years to come. At the moment, the oldest millennials are in their late 30s with the youngest bridging the gap into legal drinking age.
According to data from the United States Census Bureau, as consumers reach their 30s and 40s, their income tends to rise, leading to a rise in spending. This tends to taper off as consumers reach their mid 50s.
Considering the ages of millennials and Census Bureau trends, millenials are likely to become bigger spenders, and that’s great for the companies that cater to this population, and those that invest in them. Below are a few stocks that I believe will see strong growth as millennial spending trends up.
Match Group (NASDAQ: MTCH)
Another great stock that is banking off of the millennial trend is Match Group. The company has helped to redefine how millennials find love, and with smashing success. Match operates a line of dating websites, and is easily the leader in the space.
In fact, if you’ve done any online dating, chances are that you know this company well. While its core brand is Match.com, or simply Match, the company has a long line of strong brands. These include PlentyofFish, Tinder, okcupid, and and six other brands.
However, if you want to see a bit of backup to the statement that the company is the clear leader in the space, just take a look at a few stats. According to the Match Group investor relations website, its subscription base averages around 8.6 million. This has led to LTM revenue of nearly $2 billion as 64% of those that find love online find it using one of the company’s 10 well-known brands.
A core point of value for the company and its investors is its Tinder brand. Today, Tinder is the #1 downloaded dating app. Moreover, it is the top grossing dating app in the world. Not to mention, even outside of the dating realm, Tinder is the second highest grossing app in the world across all categories.
As more and more millennials look to find love online, and have increasing funds to do so, it only makes sense that Match would continue to see strong growth in membership and revenues across its brands, making this a stock that’s hard to ignore.
Etsy (NASDAQ: ETSY)
Finally, we have Etsy. Etsy is a global online marketplace, specifically designed to bring buyers and sellers of unique handcrafted goods together. This hits millennials in two ways.
First and foremost, millennials are doing about 60% of their shopping online these days. With Etsy being the largest online marketplace for unique handcrafted goods, the company appeals to this audience in a big way.
However, another thing to think about is product interest among millennials. There’s a reason that we’re seeing a rise in craft beer at bars and crafted sandwiches in fast food drive throughs. Millennials are interested in well-crafted goods, whether it be food, drink, or retail items like furniture, trinkets and more. With a focus on the handcrafted product niche, Etsy appeals to millenials in yet another way.
In doing so, the company has seen incredible success, and continues to grow to capture a larger share of a nearly $3 trillion global ecommerce market.
Analyst seem to love the stock too. With 13 analysts weighing in on ETSY, the average rating is a buy. The average price target on the stock is $73.73, representing a potential upside of nearly 20%.
As Etsy continues to grow its audience, offering, and global reach, the potential for gains is incredible. With millennials reaching ages that tend to lead to higher levels of spending, and their increasing appetite for unique goods, this stock has the potential to see tremendous gains.
Mogo Finance Technology (NASDAQ: MOGO)
Mogo Finance Technology is a company that is riding a wave of increasing fintech uptake in Canada. Founded in 2003, the company is considered to be a pioneer in the Canadian FinTech space.
The company’s name, Mogo, stands for Money-On-the-GO, which is exactly what it is. Mogo is leading the emerging trend of “financial wellness” by delivering a fully integrated solution of innovative financial products that actually help consumers (mostly millennials) manage their financial lives.
Through the Mogo app, Canadians get access to a digital spending account with a Prepaid visa card that makes it easier for them to manage and control their spending, investment products including cryptocurrency, Canada’s first free credit monitoring solution, an ID fraud protection product as well as access to smart credit options including consumer credit and digital mortgage products. The company also has plans to launch a number of additional products later this year which will further enhance their solution and market leadership.
With more than 800,000 members, Mogo has a proven ability to penetrate the market. Not to mention, making an argument that the stock is highly undervalued is a simple thing to do. When compared to its American and European peers, the company is trading at a 75% to 90% discount with a per member valuation of $125. Per member valuations at Chime and N26, the company’s closest comparable U.S. and European peers, are about $500 and $1,175 respectively.
Comparing the company to peers in Canada yields the same results. Lightspeed (TSX: LSPD) is a newly public Canadian FinTech with a market cap at about $1.7 billion. That’s about 18x the market cap at Mogo. On the other hand, when it comes to revenue and growth scale, the companies are very closely aligned. In the most recent quarter, Lightspeed reported revenue of C$20.1 million, seeing YoY growth at approximately 34%. Mogo’s most recent report showed revenue of $16.4 million, with year over year growth of about 57% in core revenue.
It’s also worth mentioning the company’s recent announcement of an agreement to acquire Difference Capital. While the transaction is subject to shareholder approval, once complete, it will put Mogo Finance Technology on strong financial footing, bringing more than C$34 million in cash and monetizable assets.
All in all, Mogo is in a strong position for growth ahead. The company is catering to a growing base of millennials with a craving for technological solutions to their financial questions. With the company’s strong fundamentals along with its leadership position in the massive and highly profitable Canadian banking market, I believe that Mogo is positioned for a significant breakout above its current share price. The company also has six research analysts covering the stock which clearly have a similar view as they all have Buy ratings on the stock with an average target today of over 2x Mogo’s current stock price.
Netflix (NASDAQ: NFLX)
Netflix is the next up on the list, and for good reason. Millennials are all about cutting the cord, leading to companies like Netflix, Hulu, and YouTube being disruptive forces in the entertainment industry.
Nonetheless, Netflix has had a choppy year as a result of dwindling domestic growth, which came in at around 9% in 2018. While the company’s domestic growth is a slight concern, the big story has to do with the company’s work on a global scale.
For Netflix, the core focus as of late has been an effort toward international expansion. This is an area where the company has seen incredible success. In fact, the company is responsible for about 30% of global subscriptions of streaming video services.
The truth of the matter is that the term millennial doesn’t only describe Americans. It is a term used around the world, and the upward spending trends are also global. Netflix has penetrated a large audience in the United States, and continues to see some growth in the space. However, looking at the opportunity from a global perspective shows that there is plenty more room for gains.
I’m not the only one that sees the room for growth either. In fact, Analysts are overwhelmingly rating the stock as a strong buy with a price target that suggests a more than 12% potential upside. All in all, if you’re looking to see growth in your portfolio as a result of global millennial spending trends, Netflix is a stock that’s well worth looking into.
LYFT (NASDAQ: LYFT)
One of the pioneers of the ride-sharing industry, Lyft recently made its public debut at just over $70 per share. While the stock has seen a dramatic decline since its IPO, falling to just under $50 per share, the weakness likely presents an opportunity.
LYFT is a company that caters to millennials and has disrupted traditional taxi services. The company’s app connects riders with drivers from their community, taking a percentage of each ride as a service fee.
This is an incredibly important service in cities like New York, Seattle, and many other high-population areas around the United States as it gives millennials a strong alternative to vehicle ownership.
The company’s intuitive app and focus on millennials is leading to strong revenue growth. In fact, in 2018, the company’s revenue climbed by 103%.
It’s also worth mentioning that Uber’s recent IPO could prove to be a positive catalyst for LYFT. After all, uber’s valuation of around $60 billion, those who gain interest in Uber but want a lower cost option to enter the ride share space will likely fall back to LYFT as an alternative.
Moreover, those that compare the two companies will likely see more opportunity in LYFT than uber. After all, Uber revenue only grew by 43% in 2018, well below LYFT’s 103%. Not to mention, Uber saw further deceleration in the last quarter.
All in all, LYFT is providing a transportation solution that is quickly being adopted by the millennial community, leading to strong growth in revenue. As the company continues to disrupt the taxi industry, it is likely to continue to see this strong growth. Moreover, public hype surrounding the Uber IPO is likely to prove to be a positive catalyst for the stock. For these reasons, LYFT may be an opportunity that’s hard to ignore.
The millennial spending trend is likely to open the door to several profitable opportunities in the market. In my opinion, the stocks listed above represent strong opportunities for long run growth as gains in millennial income lead to increased spending in the United States and around the world.
This article was written by Joshua Rodriguez, owner and founder of CNA Finance. Read all relevant disclosures and disclaimers at CNAFinance.com.
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