When Netflix (NASDAQ: NFLX) first introduced its video-streaming plans in 2007, its stock traded at around $3 per share. However, few investors had the foresight to realize just how revolutionary the concept would become: With 130 million members in more than 190 countries today, Netflix closed this week at a whopping $380 per share.
Of course, there’s a case to be made that Netflix still has plenty of room to climb from here. But that’s little consolation for investors who missed its meteoric rise over the past decade.
To that end, we asked three top Motley Fool contributors to each find a stock that they believe could potentially put Netflix’s returns to shame. Read on to learn why they think Arista Networks (NYSE: ANET), Activision Blizzard (NASDAQ: ATVI), and Vertex Pharmaceuticals (NASDAQ: VRTX) fit the bill.
Disrupting networks as we know them
Steve Symington (Arista Networks): Similar to the way Netflix revolutionized how we consume video entertainment, Arista Networks is actively using its innovative software-driven cloud networking platform to disrupt legacy industry giants in both the large-scale data center and routing spaces. And it has already delivered exceptional returns for early investors in the process, with shares more than quintupling since shortly after its 2014 IPO.
While those markets still offer plenty of growth — revenue in Arista’s most recent quarter soared 28% year over year — in May Arista expanded its scope even further by unveiling a new network architecture aimed at doing the same thing for enterprise campus environments (think interconnected local area networks run by companies, governments, or universities, for example), which have grown increasingly complex and are ripe for the simplification, efficiency, and security that cloud networking offers.
Keeping in mind shares only recently popped more than 9% last week following news that Arista was joining the S&P 500 index, we’re still “only” talking about a $22 billion company as measured by market cap. But with legacy peers like Cisco valued at closer to $220 billion, and if Arista can continue taking market share from its larger competitors, I see no reason why the stock can’t still offer incredible returns going forward.
More than just a game
Demitri Kalogeropoulos (Activision Blizzard): Netflix’s recent rise has demonstrated how exclusive, original content can deliver far greater financial rewards than the act of serving as a platform for other companies’ intellectual property. But that notion has been fundamental to Activision Blizzard’s entire business model, and investors are just starting to see the long-term potential this approach could have on the developer’s earnings power.
Activision’s central aim is to attract a large audience and keep these users highly engaged in its content. Instead of shows and movies, it uses its deep portfolio of company-owned franchises, including global blockbuster brands like Call of Duty, Candy Crush, and World of Warcraft, as its main draw.
At its last quarterly outing, Activision revealed that 350 million customers log into its games each month and spend about 50 minutes per day playing its titles. The developer monetizes that hefty usage in several ways, including initial game purchases, subscription services, episodic content sales, and micro transactions. Like it has for Netflix, the push toward digital spending and online content delivery has made the gaming giant’s business far more valuable.
Activision has a few other avenues of growth available to it that Netflix doesn’t, such as advertising and live content broadcasts around the esports megatrend. As long as it continues to crank out gaming experiences that resonate with its users, that flexibility could allow the company to outperform the streaming media giant from here.
A biotech with a virtual monopoly
Keith Speights (Vertex Pharmaceuticals): Let me first acknowledge that there aren’t many stocks that could truly put Netflix’s returns to shame. However, I think Vertex Pharmaceuticals could potentially top Netflix’s performance over the next few years.
While Netflix has some competition with deep pockets, Vertex enjoys what amounts to a monopoly in treating cystic fibrosis (CF). The company claims three approved drugs, Kalydeco, Orkambi, and Symdeko, that target the underlying causes of CF. All other CF drugs merely address the symptoms of the disease.
There are around 34,000 CF patients currently eligible for treatment with Vertex’s three approved products. The biotech thinks that number will increase to 44,000 as it secures regulatory approvals for label expansions related to age and additional mutations of the CFTR gene that cause CF.
But the big opportunity is with Vertex’s triple-drug combos in late-stage clinical studies. The company expects these new drugs will expand the addressable number of patients to 68,000 — doubling Vertex’s market in CF over the next few years. Its closest potential rival, Galapagos (NASDAQ: GLPG), recently reported a big pipeline setback that could mean Vertex continues to enjoy a monopoly for years to come.
Vertex is also looking to venture beyond CF. The biotech’s pipeline includes a promising pain drug, VX-150. Vertex is also working with Crispr Therapeutics (NASDAQ: CRSP) to develop a gene-editing therapy for rare blood disorders beta thalassemia and sickle cell disease.
The bottom line
Few stocks will go on to rival the returns that Netflix has already achieved, and we obviously can’t guarantee that these three businesses will do even better. But between Arista Networks’ disruptive ways in the cloud networking space, Activision Blizzard’s massive earnings power and incremental growth opportunities, and Vertex Pharmaceuticals’ virtual monopoly treating CF and an enviable new drug pipeline, we like their chances for doing exactly that. And we think investors would do well to put their money to work accordingly.
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Demitrios Kalogeropoulos owns shares of Activision Blizzard and Netflix. Keith Speights owns shares of Vertex Pharmaceuticals. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Arista Networks, and Netflix. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.