Facebook Inc (NASDAQ: FB) is a company that needs no introduction.
Its platforms, such as Facebook, Instagram and WhatsApp, allow users to connect, share, discover, and communicate with each other.
Facebook’s business strength comes from its strong competitive advantage. It has what is called a “network effect”.
When a new user joins Facebook’s product, that product becomes slightly more valuable. That, in turn, encourages more users to join, creating a network effect at large. Once this network effect is created, it will be hard for users to leave.
Facebook monetises this user base by selling ads as a form of digital marketing.
From 2016 to 2020, Facebook’s revenue has grown consistently yearly by 33%, from US$27.6 billion to US$86.0 billion.
Similarly, the social media giant’s net profit increased from US$10.2 billion in 2016 to US$29.1 billion in 2020, up 30% annually.
Facebook also enjoys a strong balance sheet.
As of 31 March 2021, it had US$64.2 billion in cash, cash equivalents, and marketable securities, with zero bank borrowings.
Over the short term, there will be headwinds for Facebook from the latest Apple iOS 14 update.
Under the new update, apps will require user’s permission before tracking their data across apps or websites owned by other companies, including Facebook. The new feature is called App Tracking Transparency.
In its 2021 first-quarter earnings call, the company said:
“We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recently launched iOS 14.5 update, which we expect to begin having an impact in the second quarter. This is factored into our outlook.”
This is something Facebook investors should take note of.
Stock #2: Fiverr
Fiverr International Ltd (NYSE: FVRR) is a marketplace that connects freelancers and people needing freelancing services such as website creation, logo design, and digital marketing.
Like Facebook, Fiverr’s platform enjoys a network effect. This is seen from the company’s growing active buyer base and increasing spend per buyer over time.
Fiverr’s active buyers have grown from 2.0 million in 2018 to 3.4 million in 2020, while its spend per buyer has increased from US$145 to US$205 during the same period.
Fiverr’s robust business growth continued into its latest quarter.
For its 2021 first-quarter, active buyers surged 56% year-on-year to 3.8 million and spend per buyer rose 22% to US$216.
This shows increasing momentum in Fiverr’s business.
Overall, Fiverr’s revenue has risen from US$75.5 million in 2018 to US$189.5 million in 2020, a growth of 58.4% annually.
With a total addressable market of US$115 billion, Fiverr sure has further opportunities to grow in the years ahead.
Having said that, the company is not without competition. Its closest rival is Upwork Inc (NASDAQ: UPWK), and other competitors in the space include online and offline recruiting companies for freelancers.
Stock #3: Intuitive Surgical
Intuitive Surgical Inc (NASDAQ: ISRG) is a global technology leader in robotic-assisted, minimally invasive surgery.
The company develops, manufactures and sells its da Vinci family of robot systems and related instruments and accessories used to perform minimally invasive surgeries.
Using robotic surgery, surgeons can perform delicate and complex procedures that may have been difficult or impossible with other methods. There’s also a possibility for quicker recovery when surgery is done using robots.
I love that Intuitive Surgical has a razor-and-blade business model.
Even though the company makes money from one-time sales of its surgical robot systems, it also supplies the accessories used during surgeries, which have to be replaced frequently.
The frequent replacement gives Intuitive Surgical recurring revenue, a trait I like in a business.
Intuitive Surgical’s recurring revenue makes up most of its total revenue, as seen below:
In 2020, Intuitive Surgical’s revenue fell 2.7% year-on-year to US$4.36 billion, while net income declined 23% to US$1.06 billion.
During the year, da Vinci procedure volumes and system placements were hit by the COVID-19 pandemic, as hospitals worldwide diverted resources to respond to the health crisis.
However, in the 2021 first-quarter, Intuitive Surgical saw a healthy recovery in surgery numbers and the use of its products as the pandemic eased.
With vaccinations rolling out worldwide and as COVID-19 cases drop further, Intuitive Surgical should continue seeing a healthy pickup in its business.
Now let’s turn to the market opportunity for the robotic surgery company.
In 2020, Intuitive Surgical’s systems handled 1.25 million surgical procedures, which looks like a huge number.
But it’s not that large compared to the around 6 million procedures performed annually where Intuitive Surgical already has products and regulatory clearances.
The company continuously introduces new products and services to grow its business. After adding this expanded market opportunity, roughly 20 million soft tissue surgical procedures are conducted yearly.
Over time, the company could be in a position to target all those procedures as well.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer owns shares in Fiverr and Intuitive Surgical.
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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