2 Stocks With Jaw-Dropping Growth Potential

By Markets Fool.com

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Investing in companies with superior growth potential can be a powerful strategy for market-beating returns. At the end of the day, a stock is simply a share in the ownership of a company. All else the same, the bigger the potential for sustained growth in the business, the larger the expected gains for investors over the years.

Companies such as Expedia (NASDAQ: EXPE) and Match Group (NASDAQ: MTCH) are not only growing rapidly nowadays, they also have a lot of room for expansion going forward, and this could be a powerful return driver for investors in these businesses over the years and even decades ahead.

Making reservations for long-term growth

Consumers across the world are increasingly relying on all kinds of websites and mobile applications to compare prices and purchase a wide variety of products and services. The travel industry is going through a major transformation due to new technologies and changing consumer habits, and Expedia is one of the main beneficiaries from such trends.

Operating under brands such as Expedia.com, Hotels.com, Travelocity, Orbitz, Wotif, AirAsia, and HomeAway, among others, the company owns several platforms that provide access to hotel rooms, airline tickets, rental cars, and cruises.

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As of Q2 2016, Expedia has over 307,000 hotels available on its platforms, an increase of 20% year over year. Scale is a crucial competitive advantage in the industry, a bigger platform generally means a more recognizable brand and better opportunities for customers to find the best deals.

Expedia produced $3.8 billion in gross bookings during the second quarter of 2016, growing by 25% versus the same period in 2015. Total revenue did even better, jumping by 32% to $2.1 billion. The company registered an increase of 20% in room night reservations versus the same quarter in 2015, so the business is growing at a nice speed across the board.

The global travel market is worth around $1.4 trillion, and online travel is rapidly gaining participation in the industry. According to management estimates, Expedia owns a relatively small market share of 11% of the online travel market in the U.S., while the company's market share drops to 2% in EMEA (Europe, the Middle East, and Africa), 1% in Asia Pacific, and 1% in Latin America.

Online travel will most probably keep gaining ground versus traditional travel operators in the future, and Expedia still has considerable room for market share gains in its sector. This means the company is well positioned to continue delivering sustained growth for investors.

Should you fall in love with Match Group?

Match Group is the top player in online dating websites and applications. Tinder is the crown jewel of the company and its most popular brand, however, Match Group owns a diversified portfolio featuring over 45 different bands in more than 190 countries. In addition to its dating business, the company operates The Princeton Review, which provides test preparation, academic tutoring, and college counseling services.

The main financial and operational variables are all moving in the right direction at vigorous speed. Total revenue grew 21% last quarter, driven by a 23% increase in dating revenue. Average paid member count increased 30% to $5.3 million, and operating cash flow grew 22% year over year.

Management calculates that the business has a massive addressable market of nearly 511 million single internet users in the U.S., Europe, and other select countries. This indicates that the company has abundant room for growth in the dating industry.

While bigger social networks such as Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR) make most of their revenue from advertising, Match Group is mostly focused on monetizing the business via its subscription services. Advertising in Tinder is expected to increase this year, but the company is still exploring the best ways to capitalize on advertising opportunities without hurting the user experience too much.

Even if the company manages to capture just a small share of the online advertising market, this should mean exciting opportunities in this area. Match Group made $301 million in revenue during the second quarter of 2016. That's half of the $602 million in sales reported by Twitter, while industry juggernaut Facebook produced a gargantuan $6.24 billion in sales during the same period. Comparing market capitalization levels, Match Group is currently worth $3.8 billion versus $11.5 billion for Twitter and $358.6 billion for Facebook.

When investing in growth stocks, good things usually come in small packages. Match Group is materially smaller than Twitter or Facebook, and this should mean attractive potential for expansion over the coming years.

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Andrs Cardenal has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool recommends Match 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.