Mobile applications, better known simply as “apps,” have become a $5 trillion industry. If you have a smartphone, chances are you spend a lot of time thumbing through various apps—probably more time than you’d like. Worldwide, people spent 1.6 trillion hours using apps in 2016, a figure that’s expected to more than double, to 3.6 trillion hours, by 2021. That’s a great trend for the companies that own and publish mobile apps. And it bodes quite well for mobile app stocks.
You already know the companies that make the most money from apps. Those would be Apple (AAPL), Google (GOOG) and Netflix (NFLX). But those aren’t “app stocks,” per se. They are multi-pronged, multinational, globally recognized juggernauts who make money from a variety of sources, and aren’t necessarily driven by their app-related businesses. Plus, their stocks are well known—comprising three-fifths of the so-called FAANG stocks—and, thus, their greatest growth periods are behind them.
Mobile app stocks, by my definition, are companies that not only derive a significant portion of their revenue from app sales and advertising on their apps, but that are perhaps most identified with their mobile app(s). Thanks to the recent market correction and ongoing volatility, there aren’t as many mobile app stocks faring well today as there were three or four months ago. But the following two have held up quite well – which means they’re set up for much bigger runs once the market regains its footing.
Two Mobile App Stocks to Buy
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Mobile App Stock to Buy #1: Pandora Media, Inc. (P)
For most of its life as a public company, Pandora has been a disaster. Shares of the music-streaming app—currently ranked No. 35 in the Apple App Store’s mobile app rankings—tanked right out of the gates after its 2011 IPO. Pandora stock gained steam after bottoming at 7 in late 2012, rising as high as 37 in February 2014. Then the bottom fell out again, as the stock plummeted for two straight years, dipping as low as 8 in early 2016. After some sideways action in 2017, P stock gapped down again about a year ago, this time to 4. It was still at 4 last April. Then it did this:
Why the big run-up?
2018 first-quarter beat consensus estimates by more than 28%, which helped. It’s not profitable, but Pandora’s sales are consistently growing, though not by double digits the way they were two years ago. The stock held up well through the end-of-year correction, and is trading above both its 50- and 200-day moving averages, building a solid base in the 7.5-to-9 range since October. A breakout is likely coming if the market gets going.
Mobile App Stock to Buy #2: PayPal (PYPL)
Founded in 1998, PayPal didn’t start out as an app. But since rolling out its own app, and subsequently buying emerging peer-to-peer payment rival Venmo in 2014 (as part of an $800 million acquisition of Braintree), the company has grown. In 2017, PayPal’s top- and bottom-line growth both exceeded 20% for the first time since 2012 (full-year 2018 earnings aren’t due out until later this month).
PYPL came public in July 2015 after being spun off from eBay (EBAY). In its first 18 months, the stock didn’t really go anywhere. But it found its footing in early 2017, and the stock has more than doubled in the last two years.
The PayPal and Venmo apps are taking up an increasingly large slice of the pie, accounting for 37% of total payment volume. The growth in Venmo is what has really fueled PayPal’s growth; the platform processed more than $17 billion in payments in the third quarter of 2018 alone, up 78% from the same quarter a year ago. CEO Dan Schulman called Venmo “the preferred way for millennials to manage and move their money.”
PayPal has made more than a few appearances in our momentum stocks advisory, Cabot Top Ten Trader. I expect it to make quite a few more appearances in the years ahead.
If you’d like to find out the names of the 10 momentum stocks making appearances in this week’s Cabot Top Ten Trader issue, click here.
In the meantime, I’d add the two mobile app stocks mentioned above to your watch list. The beneficiaries of a booming industry, both Pandora and PayPal (and other mobile app stocks I haven’t mentioned, like Square (SQ), because their charts don’t look so hot right now) are poised for big runs in the years ahead.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!