2 Tech Stocks That Could Make You Rich

By Markets Fool.com

The tech sector often attracts investors who are hungry for growth. However, fast growth stocks can crash quickly if their growth fades. Therefore, investors shouldn't just check out the headline numbers for double or triple-digit sales or earnings growth. Instead, they should see if the company is built to last and make investors rich over the long term.

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Let's discuss two stocks which fit that profile -- Expedia and Amazon -- and why they could generate big returns for investors over the next decade.

Image source: Pixabay.

Expedia
Expedia controls about 75% of the online travel agency (OTA)market in the U.S. and 10% of the marketworldwide. In addition to its namesake site, Expedia owns a large portfolio of other OTAs, including Travelocity, Orbitz, Wotif, Trivago, and Venere. It also recently acquired Airbnb rival Homeaway for$3.9 billion, and divested its stake inunder-performingChinese OTA eLong .

Expedia's only meaningful competitor is Priceline , which has a smaller share of the domestic market but a bigger share of the overseas one. But over the past few quarters, Expedia has crushed Priceline in revenue growth, thanks to robust bookings in the U.S. market.

Company

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Expedia

11.4%

13.5%

25%

38.7%

Priceline

7.5%

9.2%

8.7%

16.8%

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YOY sales growth. Source: Quarterly reports.

Expedia'sgross bookings rose 32% annually last quarter, thanks to its recently closed acquisitions of Orbitz and Homeaway. Excluding those two acquisitions and the eLong divestment, bookings improved 13%. Priceline's bookings rose 21% last quarter. Both OTAs reported big double-digit gains in hotel and airline bookings.

Expedia expects its adjusted EBITDA to grow 35% to 45% in 2016, with the "vast majority" of that growth occurring in the second half of the year. Looking further ahead, analysts expect Expedia to post 26% annual earnings growth over the next five years. That's lower than its P/E of 25 and pushes its 5-year PEG ratio slightly under 1 -- indicating that its stock is still cheap relative to its earnings growth potential.

Amazon
With an enterprise value of over $300 billion and a P/E of around 280, it initially seems silly that anyone would suggest that Amazon could become a "multibagger" again within a few years. Yet that's exactly what Chamath Palihapitiya, founder and CEO of VC firm Social Capital, recently declared at theSohn Investment Conference in New York.

Palihapitiya suggested that Amazon's market value could increase nearly ten-fold to $3 trillion within a decade, thanks to its AWS (Amazon Web Services) cloud platform disrupting the IT market in the same way it dominated e-commerce. "There are going to be an unbelievable number of losers when AWS gets to scale," he stated.

Image source: Amazon.

AWS has become Amazon's most profitable business over the past year, generating 9% of its overall sales but 56% of its operating profits last quarter. Operating income at the unit soared 211% to $604 million during the quarter, helping the company post a net profit of $513 million -- compared to a loss of $57 million in the prior year quarter. AWS' annualrun rate of over $10 billion makes it the largest cloud platform by a wide margin, which gives it the ability to undercut its rivals with lower prices while relying on economies of scale to remain profitable.

If AWS continues to boost Amazon's profits, push its cloud rivals out of the market, and continue supporting its expanding marketplace business, its valuations could cool down. Moreover, Amazon's high P/E is still somewhat supported by analyst projections for 326% earnings growth this year followed by 83% growth in 2017.

The key takeaway
Expedia and Amazon are both market leaders with wide moats. Expedia has made it very difficult for smaller OTAs to compete with its sprawling network of sites, which offer consumers an illusion of choice while feeding into a single company. If a small OTA challenger manages to grow, it's likely that Expedia will buy it out before it becomes a viable threat. Amazon has made it tough for brick-and-mortar and online retailers to thrive, and it now threatens to do the same to cloud platform providers.

Expedia and Amazon might already look "big" after their big stock gains over the past decade, but both companies now dominate their respective markets and will likely retain control for the foreseeable future. Therefore, I believe that there's still room for both stocks to generate solid returns for investors who buy shares today.

The article 2 Tech Stocks That Could Make You Rich originally appeared on Fool.com.

Leo Sun owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com and Priceline Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.