Markets

2 Growth Stocks That Could Make You a Millionaire

Many things influence a company's future prospects, but one of the most important is sales growth. Specifically, strong top-line momentum is often an indicator of a valuable product or service, and companies that create that value for clients have the potential to generate life-changing returns for those who own their stock.

Etsy (NASDAQ: ETSY) and Pinterest (NYSE: PINS) have delivered tremendous growth in recent years, but both have plenty of room to run. Here's why these stocks could make you a millionaire.

Investor analyze various pie charts and bar graphs on a blackboard.

Image source: Getty Images.

1. Etsy

Etsy's mission is to keep commerce human. Its global marketplace connects creative sellers with buyers looking for handcrafted or specialized goods -- the type of things they can't find anywhere else. Notably, this strategy has differentiated Etsy from its rivals, allowing the company to compete with e-commerce titans like Amazon.

Last year the pandemic turbocharged Etsy's growth, and it became a household name for many consumers, especially those in need of face masks. In fact, Etsy powered $10.3 billion in gross merchandise sales (GMS) in 2020, up 107% over the prior year, and it's now the fourth-largest e-commerce marketplace in the U.S.

That scale is a tremendous advantage, spinning the flywheel that powers Etsy's business. Here's how it works: As more consumers shop on Etsy, sellers benefit from a wider range of potential buyers; and as more sellers list items on Etsy, buyers benefit from a greater selection of products.

Over time, this virtuous cycle serves to expand Etsy's ecosystem, diversifying its inventory and further differentiating it from big-box retailers. That, in turn, has translated into strong top-line growth.

Metric

Q1 2018 (TTM)

Q1 2021 (TTM)

CAGR

Active buyers

2.0 million

4.7 million

33%

Active sellers

34.7 million

90.7 million

38%

Revenue

$465.3 million

$2.0 billion

64%

Data source: Etsy SEC filings, Ycharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Despite those impressive metrics, Etsy has only scratched the surface of its potential. In fact, management puts its total addressable market (TAM) at $437 billion by 2023, but that number expands to $2 trillion if you include offline sales in relevant retail categories. In other words, Etsy's TAM should continue to grow as e-commerce gains traction.

Moreover, management's estimate only accounts for six markets around the world, meaning geographic expansion could drive Etsy's TAM even higher. To that end, the company recently entered India, the world's fastest-growing e-commerce market.

Here's the big picture: Etsy's sales account for less than 1% of its addressable market. But if the company can continue to scale by onboarding new buyers and sellers, I think Etsy could grow tenfold from its current market cap of $24 billion.

2. Pinterest

Pinterest is the go-to place for inspiration. It blends user-curated media content with a visual search engine, helping people picture their dreams and discover new ideas -- like a tasty recipe, a trendy summer fashion, or tips on planning a tropical getaway.

Notably, the platform leans on artificial intelligence and computer vision, allowing Pinterest to personalize the experience for each user. And as more users engage, Pinterest collects more data, sharpening its predictive capabilities.

Two people looking a smartphone screen.

Image source: Getty Images.

Collectively, these attributes make Pinterest unique -- it's not just a search engine, nor is it just a social platform. Pinterest is a tool that helps people find what they want, even when they don't have the words to describe it.

Those qualities also make it a great place for brands to reach consumers. Because people come to Pinterest in search of inspiration, digital ads fit organically into the platform, enriching the experience. In fact, ads on Pinterest offer two times better return on investment (ROI) compared to other social media. And advertisers have started to take note of this, upping their spend on Pinterest's platform.

That has translated into strong revenue growth.

Metric

Q1 2018 (TTM)

Q1 2021 (TTM)

CAGR

Monthly active users

239 million

478 million

26%

Revenue

$521.0 million

$1.9 billion

54%

Data source: Pinterest SEC filings. TTM = trailing 12 months. CAGR = compound annual growth.

So why does Pinterest have so much potential? With a market cap of $46 billion, Pinterest is more than 20 times smaller than Facebook, yet its unique platform is a better place for brands to reach consumers.

Specifically, people come to Pinterest looking for ideas -- in other words, they often come with shopping intent. As a result, over the last year, Pinterest saw a 200% increase in the number of users interacting with shopping tools on its platform. Moreover, the company has focused on building a positive, brand-safe environment, meaning ads are unlikely to appear beside divisive content or hate speech. Other social platforms can't make the same claims.

If Pinterest can continue to grow monthly active users at a steady clip, the platform should become increasingly valuable to advertisers over time. And with the digital ad market set to hit $645 billion by 2024, I think Pinterest could grow tenfold in the years ahead. That's why investors should consider adding this growth stock to their portfolios.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Amazon, Etsy, and Pinterest. The Motley Fool owns shares of and recommends Amazon, Etsy, Facebook, and Pinterest. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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