The SEC requires all institutional investors with $100 million in managed assets to file a Form 13F each quarter. This document details a firm's equity holdings, providing a level of transparency for the public. If you're searching for new ideas, this is a great way to see what some of the smartest investors are buying.
In the latest round of filings, Blackrock and Vanguard -- two of the world's largest asset managers -- were buying shares of Palantir (PLTR +0.12%) and Shopify (SHOP +1.95%). Here's why both look like good stocks to own.
Palantir: Big data analytics
Back in 2003 Palantir started designing software for the U.S. intelligence community, including the Pentagon and the CIA. Today it provides two different platforms, Gotham and Foundry, which are designed for government agencies and commercial clients, respectively.
Image source: Getty Images
Notably, both of these solutions are powered by a third platform: Palantir Apollo. This continuous delivery system automatically updates its software-as-a-service (SaaS) products, regardless of whether they are running in a public cloud, in a private data center, or on a classified network. That differs from traditional SaaS products, which typically run in a single public cloud.
Put simply, Foundry and Gotham enable clients to draw insights from massive amounts of information, which helps them make fast, data-driven decisions.
For example, in the commercial sector, Palantir's software has applications in pharmaceuticals, clinical research, and healthcare logistics. Foundry is used to accelerate drug discovery, study the COVID-19 virus, and coordinate the distribution of personal protective equipment and vaccines. According to Palantir, its Foundry platform can turn insights into actions faster than any other platform. That's a compelling value proposition.
In 2020, Palantir's revenue jumped 47% to $1.1 billion, with government and commercial clients accounting for 56% and 44% of sales, respectively. Notably, government spending is growing more quickly -- sales in this segment surged 77% last year. That underscores one of Palantir's key advantages: its history of working with classified government data.
Even so, revenue from commercial clients increased a respectable 22%. And the company recently won several new contracts that should help its commercial business gain momentum. For instance, Palantir inked deals with the world's second-largest mining company, Rio Tinto, and California's largest public utilities provider, PG&E.
Going forward, investors should pay attention to Palantir's ability to add new customers and maintain its strong top-line growth. The stock trades at a relatively pricey 24 times sales, and any bad news could send shares tumbling.
Shopify: Digital commerce
Shopify's cloud-based software is designed to make commerce easier. Its platform allows users to manage multiple storefronts from a single backend, the Shopify dashboard, including both physical and digital retail locations. Shopify also provides merchant solutions for payment processing, shipping and fulfillment, financing, and much more.
Shopify launched support for several new channels in 2020, enabling merchants to sell on social media like Pinterest, TikTok, and Facebook Shops, as well as e-commerce marketplaces like Walmart. But nothing puts Shopify's scale in perspective like this statistic: In 2020, a new business made its first sale through Shopify every 28 seconds.
The company generates revenue in two different ways: First, it charges subscription fees for access to its platform. Second, it collects fees for merchant solutions like payment processing, financing, shipping, and fulfillment.
Last year, Shopify added 680,000 new merchants to its platform -- more than double the number it added during 2019 -- bringing the total to 1.7 million. That helped drive 42% growth in subscription revenue, marking an acceleration over the 38% growth in 2019.
Additionally, strong adoption of services like Shopify Payments, Shopify Capital, Shopify Shipping, and Shopify Fulfilment caused merchant solutions revenue to surge 116% last year. This also marks an acceleration over the 54% growth in 2019.
|
Metric |
2017 |
2018 |
2019 |
2020 |
|---|---|---|---|---|
|
Revenue Growth |
73% |
59% |
47% |
86% |
Data source: Shopify SEC filings.
In total, Shopify's revenue reached $2.9 billion in 2020, up from $1.6 billion in 2019. Given the company's impressive past performance and potential future trajectory, it's not surprising to see firms like Blackrock and Vanguard adding shares of Shopify to their portfolios.
Going forward, the company should continue to benefit as more commerce occurs through digital channels. Additionally, the company's focus on international expansion and building out its fulfillment capabilities should also be tailwinds. That's why, despite a $141 billion market cap , I think Shopify still has plenty of room to grow.
