Disruptive companies have the best chance at delivering hypergrowth to investors. These are the businesses that transform industries — or even invent their own.
Amazon, Alphabet, Block, and Airbnb are a few prominent names that have delivered huge returns while changing the world. Growth investors should consider the next wave of innovators with the potential to become tomorrow's industry leaders. Here are three to watch.
BlackLine (NASDAQ: BL) is a fintech stock that sits at the intersection of enterprise SaaS, artificial intelligence, and automation. Accounting departments use the company's software to collect, report, manage, and analyze financial data. Instead of a hectic, fragmented internal process that requires wrangling data from binders, spreadsheets, and file folders, BlackLine's customers have a centralized platform that creates uniformity.
Accounting teams collaborate much more efficiently with this software, and it reduces the risk of costly accounting errors. Fintech has completely changed the way consumers track their finances and measure progress — BlackLine is bringing that same disruption to the corporate world.
BlackLine's economic moat and growth potential make it a compelling stock. Once in place, BlackLine becomes an important part of the accounting and reporting process, and it touches many different aspects of its customers' businesses. When you have a vital tool used every day by a large number of your employees, it tends to become “sticky.” That makes it expensive or challenging to switch to a competitor's offering, retrain employees, and implement the new solution.
The company also integrates with dozens of enterprise resource planning software vendors, and it pursues distribution deals with partners, further helping the company create a sustainable competitive advantage.
Proof of its efficacy lies in BlackLine's high-profile clients across various industries and its 108% net revenue retention rate. High ratings from Gartner also bolster the quality reputation of its product suite.
Most of BlackLine's addressable market is still untapped with enterprise and middle-market businesses using a combination of other software and manual processes. The fintech disruptor delivers consistent growth around 20%, and it generates positive free cash flow.
Those are all exciting features for investors, and it's enough for me to ignore BlackLine's aggressive valuation ratios. The stock is down about 22% year to date, offering investors a chance to pick up shares at a discount.
The insurance industry is one of the most resistant to change in the financial sector. It's got a complex web of regulation at the state and federal levels, and most types of insurance are sold and administered by a large network of agents. These are undeniable challenges for disruptors, but it also creates an environment that's absolutely begging for innovation.
Lemonade (NYSE: LMND) wants to crack the code and extend the direct-to-consumer revolution to this antiquated corner of the financial world. The company offers auto, homeowners, renters, and life insurance. It uses artificial intelligence (AI) to simplify and speed up the insurance purchasing process.
The company has grown to more than 1.3 million customers, and gross earned premium was up more than 80% in the third quarter. The company recently enhanced its position in the auto insurance market by acquiring Metromile.
Importantly, Lemonade is expanding its offerings and seeing growth from bundling products. Revenue per customer is rising as people sign up for multiple policies through its platform. That's really important in a competitive business with high customer acquisition costs. Premium per customer was up 26% through the first three quarters of 2021.
The stock still has an aggressive valuation, but it has fallen off sharply this year, presenting an opportunity for long-term investors.
Artificial intelligence is changing the world, and it's only becoming more important. However, some businesses lack the scale or expertise to unlock the potential of automation and machine learning. Enter C3.ai (NYSE: AI), which develops enterprise AI software. The company built its reputation with energy industry clients, but it is quickly expanding into other sectors.
C3.ai's growth is promising. Revenue is up 35% in its fiscal 2022 year to date. The company is seeing wider adoption as its customer count grew 63% year over year to over 104 in the latest quarter. These customers come from 14 different industries, doubling from just seven in the same period last year.
Despite its clear promise, the stock is down 80% from its 52-week high. Investors are concerned C3.ai isn't expanding existing customer relationships enough. That could be evidence the company's software isn't creating as much value as hoped for users.
That's not a death sentence, but it puts a cap on growth and opens the door to competition. The whole AI industry is in its early stages, so “AI as a service” requires some proof of concept. Early movers could get swallowed up by newcomers that learn from the mistakes of early movers.
Still, C3.ai is doing something pretty radical, and it has enormous growth potential as a result. It has extremely accomplished executive leadership and a strong roster of customers with compelling use cases. It's also available at a much more palatable price point following this year's decline.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ryan Downie owns Alphabet (A shares), Amazon, and Block, Inc. The Motley Fool owns and recommends Airbnb, Inc., Alphabet (A shares), Alphabet (C shares), Amazon, BlackLine, Inc., Block, Inc., C3.ai, Inc., and Lemonade, Inc. The Motley Fool recommends Gartner and 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.