If you are looking for long-term winners in the stock market, pay close attention to secular trends. These are trends that have taken many years to build, and will likely continue to influence the economy and markets over the next several years. As such, long-term stock market winners tend to find themselves on the right side of these secular trends. Long-term stock market losers tend to find themselves on the wrong side.
With that in mind, one of the biggest secular trends in the market right now is subscription services. Subscription service stocks have been red-hot lately, mostly because everyone loves subscriptions.
Sellers love subscription services because they lend themselves to higher profitability and greater predictability. Buyers love subscription services because they are convenient, feel cheaper than one-off purchases and also allow for greater predictability.
Because both buyers and sellers love subscription services, it is easy to see that subscriptions are the future of business. Consequently, subscription service stocks that are aligned with this trend should be big long-term winners.
Here's a list of 15 subscription service stocks that I think are the cream-of-the-crop, and which should head materially higher in the long-term.
Subscription Service Stocks With Big Growth: Netflix (NFLX)
The king of the subscription service stocks is unarguably Netflix (NASDAQ: NFLX ). The streaming giant has pioneered a new way to consume visual entertainment, which is through paid subscriptions that guarantee consumers direct streaming access to a seemingly unlimited portfolio of movies and television shows.
This model has taken over the world. Now, not only do 130 million around the globe have a Netflix membership, but everyone and their best friend is pivoting into this space, too. That does create competition headwinds for Netflix. But, the company is prepared to weather competition-related turbulence due to its robust original content portfolio.
NFLX stock was knocked down recently due to a rare subscriber growth miss in its Q2 earnings report. That won't derail this stock for long. In the big picture, the platform is still adding users at a record rate. Meanwhile, price hikes are shooting average prices and margins significantly higher. This winning combination will persist into the foreseeable future, and NFLX stock will consequently head higher.
Subscription Service Stocks With Big Growth: Apple (AAPL)
The biggest company in the world, Apple (NASDAQ: AAPL ), is known for making tried-and-true consumer technology hardware products like the iPhone, iPad and Mac. But, those markets are pretty much all dried up now.
Apple, however, isn't done growing. Those markets are dried up because everyone already has an Apple hardware product. Now, Apple is attempting to monetize that massive ecosystem of Apple hardware users through various subscription services like App Store, iCloud and Apple Music.
These subscription services amount to what Apple calls its "Services" business. This business accounts for 15% of revenues, and is growing at a 30%-plus clip. It also has higher margins and greater predictability than the notoriously lumpy and low-margin hardware business. Consequently, as Apple's Services component ramps over the next several years, Apple's profits will get a big boost, and that should drive AAPL stock higher.
Subscription Service Stocks With Big Growth: Axon (AAXN)
The company formerly know as Taser, Axon (NASDAQ: AAXN ) has made a big pivot over the past two years which has shares up nearly 200% over the past year.
What is that big pivot? Much like Apple, Axon is pivoting from selling hardware to selling software. Specifically, the company is going from selling exclusively body cameras and smart weapons, to selling body cameras, smart weapons and accompanying subscription software services that modernize all parts of law enforcement agencies. These services have been the big growth segment of Axon recently.
The bear thesis on AAXN stock rests on the idea that the body camera and smart weapon markets, much like the smartphone market, are nearing saturation. But, that point importantly misses the fact that AAXN will continue growing through subscription services which further and perpetually monetize its hardware base. Thus, AAXN stock's big growth narrative is really just getting started.
Subscription Service Stocks With Big Growth: Weight Watchers (WTW)
One of the few non-technology names on this list, Weight Watchers (NYSE: WTW ) is actually one of the more powerful subscription service stocks in recent memory. Over the past three years, WTW stock is up more than 2,000%.
Why the big rally? A few things. From a macro level, healthy eating and lifestyle trends went mainstream, and public shaming feelings regarding weight-loss programs were eroded thanks to celebrity endorsement (namely, Oprah). Meanwhile, on a micro level, Weight Watchers reinvented its business to be a true subscription business with a rapidly growing digital arm that replicates the WTW program in a digital form.
All together, WTW stock has gone from ~$4 to over $90 in the past three years. We likely won't get another 2,000% rally over the next three years. But, healthy gains from here are likely given that this company is propped up by multiple secular trends, including a rise in subscription services, a rise in healthy eating habits, and a fall in public shaming of weight-loss programs.
Subscription Service Stocks With Big Growth: Amazon (AMZN)
The behemoth of e-retail, Amazon (NASDAQ: AMZN ), is also the behemoth of subscription services in the retail world.
It is no secret that Amazon hardly makes any money from the sale of goods through its platform. They run the retail business on razor-thin margins so as out-price competitors. Instead, Amazon rakes in most of its retail profit from Amazon Prime. Amazon didn't invent this subscription-subsidized retail model. But, they have been the most successful at it.
Amazon Prime has over 100 million members today. That number will only grow over the next several years as e-commerce continues to comprise a bigger and bigger piece of the total retail pie. So long as Amazon Prime grows, AMZN stock will head higher, seeing as Prime is this company's big growth driver on the retail side.
Subscription Service Stocks With Big Growth: Costco (COST)
Brick-and-mortar retail giant Costco (NASDAQ: COST ) is the pure physical version of Amazon.
The company runs its retail business on razor-thin margins so as to out-price competitors. Then, the company turns around and makes a whole bunch of profit through selling Costco memberships, which enable you to shop at the discount retailer. Consequently, just like Amazon, Costco is a subscription-subsidized retail operation.
This subscription component of Costco gives the company a big moat. Granted, growth won't be huge from here. But it will be steady and unaffected by competition because Costco members love Costco for its low prices and big convenience. Consequently, it is fairly easy to see COST stock continuing to head higher in a multi-year window.
Subscription Service Stocks With Big Growth: Walmart (WMT)
Traditional retail giant Walmart (NYSE: WMT ) isn't a full-blown subscription service company. Yet. Walmart has dabbled in subscription service "boxes", wherein Walmart customers pay a fee to get certain curated products delivered to them (see the Beauty Box ). Outside of that, though, Walmart has strayed away from the subscription world.
Until now. Walmart is reportedly launching a subscription video streaming service to compete with the likes of Netflix. That is a huge pivot away from Walmart's traditional line of business. But, it shows that Walmart is taking aggressive steps to be more and more like Amazon.
The big thing that separates Amazon is Prime. If Walmart builds a streaming service, that is a big step towards establishing a basis for a Walmart retail subscription service in the future. Inevitably, I think this will happen over the next several years. As this transition plays out, Walmart's numbers should get better alongside improving investor sentiment, a combination which should send WMT stock higher.
Subscription Service Stocks With Big Growth: Shopify (SHOP)Shopify via Flickr
One of my favorite long-term subscription service stocks to buy now and hold forever is Shopify (NYSE: SHOP ).
The company provides e-commerce solutions for retailers of all shapes and sizes, starting with one person start-ups and running all the way up to full-scale retail enterprises. The idea is that all these retailers, regardless of their size, need to maximize digital sales reach, exposure and capability across multiple sales points (direct website, through an ad, on social media, so on and so forth).
Consequently, demand for Shopify's suite of products will only grow as more and more consumer attention and money migrates online.
Shopify sells their services via a subscription model. Thus, revenues are high-margin and predictable. In this sense, Shopify is riding three huge secular tailwinds (a rise in subscription services, a rise in e-commerce, and a rise in decentralization). Together, those three tailwinds should power SHOP stock much higher in the long run.
Subscription Service Stocks With Big Growth: Electronic Arts (EA)
Did you really think that Netflix would disrupt the entire movie and television market, and that video game publishers wouldn't take notice? Indeed, they have taken notice. And one of the companies doing something about it is Electronic Arts (NASDAQ: EA ).
Most signs point to EA quietly developing what could turn out to be the Netflix of gaming . Long story short, EA technology has improved to a point where consumers don't need a massive hardware system like the Xbox to play video games. Instead, they can play them on just about any smart device.
Thus, video games are gradually converging on movie/television territory in that they can be played from anywhere. EA plans to leverage this technology to develop a Netflix-style service for video games.
The implications of such a service would be huge. Americans spent more on video games last year than at the movie theater . Thus, the Netflix of video games could arguably be just as big as Netflix. If EA is the first one to get there, that could mean huge growth ahead for EA stock.
Subscription Service Stocks With Big Growth: Disney (DIS)Baron Valium via Flickr
There is no hiding the truth. Traditional media giant Disney (NYSE: DIS ) has been getting its butt kicked by Netflix for several years now. Disney got caught on the wrong side of the secular shift from linear television to internet television. As a result, Disney's media business has tanked, and DIS stock hasn't gone anywhere.
But that is all about to change. Disney is prepping a Netflix-style streaming service that is set to launch in 2019. Considering that it's all about original content in the streaming world, and that Disney owns some of the best content assets in the world, it isn't a stretch to assume that Disney's streaming service develops into a huge success.
If that happens, presently hated DIS stock could rally in a big way. After all, this stock hasn't really done anything in several years, and the valuation is quite reasonable. Thus, a big boost in operations could spark a huge rally.
Subscription Service Stocks With Big Growth: AT&T (T)
Much like Disney, traditional telecom giant AT&T (NYSE: T ) has been killed recently, mostly thanks to Netflix. Cord-cutting has weighed on this company's wireline operations, and considering the wireless business hasn't been all roses, AT&T stock has struggled for several years.
Much like Disney, though, AT&T's prospects are starting to improve. The company owns DirecTV Now, which is essentially a streaming version of cable. Demand for this service has been robust, and promises to grow even more robust as the linear internet to television transition only accelerates over the next several years.
Granted, that will eat into AT&T's traditional video business. But, with the dividend yield hovering around five-year highs of 6.5%, AT&T stock isn't priced for any upside in the years to come. The addition of more streaming services thanks to the Time Warner acquisition could provide that upside, and that will result in healthy gains for depressed AT&T stock.
Subscription Service Stocks With Big Growth: Zuora (ZUO)
At the core of the subscription economy is little-known Zuora (NYSE: ZUO ). Zuora is essentially the company that makes the software which allows all the other companies on this list to build a subscription business. In this sense, Zuora provides the building blocks for the subscription economy.
The company presently has ~1,000 customers that include TripAdvisor (NASDAQ: TRIP ), Delta (NYSE: DAL ), FedEx (NYSE: FDX ), Nvidia (NASDAQ: NVDA ) and many more. Growth is big (revenues +60% year-over-year last quarter), and margins are improving, so this company has all the makings of an early-stage, long-term winner.
Word of caution: ZUO stock is freshly public. Freshly public stocks tend to have a ton of near-term volatility. ZUO is also relatively small, which again adds to the volatility profile. Thus, ZUO isn't for every investor. But, if you can stomach near-term volatility and are focused on long-term gains, ZUO looks good here.
Subscription Service Stocks With Big Growth: Facebook (FB)
Social media behemoth Facebook (NASDAQ: FB ) is the farthest thing from a subscription service company at the present moment. Indeed, essentially everything on all of its platforms is free.
But, Facebook can launch any number of subscription services at any point. Between its four main platforms, Facebook has 6 billion users. At some point, Facebook can start locking content behind a paywall, and tease that content to its 6 billion users. Thus, even a low conversion rate for any Facebook streaming service would amount to something very big.
This is yet another long-term benefit of Facebook's unparalleled size. Because billions of people spend several hours a day on Facebook's ecosystem of apps, Facebook has leverage to do a great number of things to increase revenue and profits. This size is perhaps the single biggest reason why investors should buy and hold FB stock for the long run.
Subscription Service Stocks With Big Growth: Adobe (ADBE)
Creative solutions giant Adobe (NASDAQ: ADBE ) is perhaps the most dominant subscription service stock on this list. When it comes to creative solutions, Adobe has no peer. That is why when the company decided to shift toward a subscription business model a few years back, and force customers to start paying multiple times for what they formerly only paid once for, irked Adobe customers made the switch anyways.
Of course, there were complaints. But those complaints didn't materialize into anything. There was no churn. No push-back. Just huge growth in Adobe's subscription businesses because creative professionals had no alternative. Revenues powered higher. So did profits. And ADBE stock.
This trend will persist over the next several years. Adobe still has a lot of firepower left in the form of market expansion and price hikes. Those two drivers will continue to power the Adobe growth narrative, and that will in turn push ADBE stock higher.
Subscription Service Stocks With Big Growth: Roku (ROKU)
Essentially, what Roku does is sell streaming video players at razor-thin margins so as to out-price competitors and grow the Roku ecosystem. Then, Roku turns around and runs ads on its streaming devices, while also collecting commissions on the various paid streaming services viewed on its players. That is the Platform business, and that is where Roku makes all its money.
It is a genius business model that works now and will work into the foreseeable future. But, Roku has big competitors. And those competitors could challenge this company's dominance in the streaming video player space. If they don't, however, then ROKU stock could be a big winner.
As of this writing, Luke Lango was long AAPL, WTW, AMZN, COST, WMT, SHOP, EA, DIS, T, FB, and ADBE.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.