Disruption may be an overused term in investing, but if you can find a truly disruptive company, you could see staggering returns. Disruptive companies come to market with a new way of doing things -- either a new kind technology, product, or business model -- and turn entire industries upside-down.
Enterprise software is one of the most attractive industries to invest in. Large businesses often stick with vendors for long periods of time. Think about it: If a business has grown accustomed to one type of software or database, it won't want to go through the trouble of moving all its data to another type of software, along with retraining everyone in the organization.
Thus, finding disruptive companies in enterprise software would be a recipe for huge returns.
Today, enterprises large and small all over the world are shifting their workloads from in-house data centers to the cloud. That's creating a huge opportunity for newcomers to upend the status quo. Here are three companies doing just that -- unsurprisingly, their stocks are skyrocketing too.
MongoDB (NASDAQ: MDB) was founded in 2007 with the goal of disrupting the database industry. A database is where companies store all of their data, and is therefore one of the most important pieces of software corporations use. The database market is huge at roughly $63 billion, and dominated by older tech giants such as Oracle.
However, the traditional relational database, which was built in a row-and-column format, is built on 40-year-old technology. Its rigid format is also less well-suited for today's world of social media posts and other such unstructured data.
Enter MongoDB, the leader in a new kind of database based on a document architecture. Document databases structure data differently than relational databases, and are just beginning to catch on. According to MongoDB CEO Dev Ittycheria, 98% of workloads are still on legacy relational databases, which means there's huge opportunity ahead.
MongoDB's recent results showed it's primed to capture a large part of that opportunity. Take a look at these eye-popping growth figures from its recent fourth-quarter 2019 earnings results.
MongoDB's incredible growth has come from its newer cloud offering called Atlas, which grew an astonishing 400% last quarter. The company's also marked its 16th straight quarter of 120%-plus expansion with existing customers, which is incredible. And it appears large enterprises are growing more and more comfortable with MongoDB's document database. As a result, the stock has had a massive run since it debut on the public market a little over a year ago.
Twilio (NYSE: TWLO) was founded in 2008, with the goal of revolutionizing enterprise communications. Twilio's communication APIs allow application developers to quickly and easily incorporate secure communications into their products.
For example, Twilio's platform facilitates communication between drivers and riders of many ride-hailing services, all while keeping each person's number anonymous to the other. Other applications include enterprise call center technology, as well as enabling real-time mobile marketing. Twilio's February acquisition of SendGrid should allow it to expand its technology to email communications as well.
Twilio's platforms are catching on. Looking at the same metrics as MongoDB, we see similar phenomenal growth numbers.
What's even more incredible is that Twilio's net expansion rate accelerated to its highest growth rate in the last two years. That means existing customers aren't just using more of Twilio's platform, but they're adopting it at higher and higher rates.
Okta (NASDAQ: OKTA) was founded in 2009 with the goal of revolutionizing employee and customer identification security. If you've been following the news in recent years, you've probably become accustomed to stories of increasingly sophisticated hacks on large organizations.
Okta helps large enterprises secure their identification capabilities without having to develop in-house systems. The company's Okta Identity Cloud integrates with over 6,000 of the most-used enterprise applications and virtually all types of devices. That allows organizations to quickly and easily secure disparate corporate offices and employee devices all over the world, regardless of device, cloud provider, or application.
The combination of security and flexibility is clearly catching on, as evidenced by Okta's incredible numbers.
Like MongoDB and Twilio, Okta is reporting the dream combination of strong net expansion and robust new customer growth.
Riding the wave of enterprise disruption
Of course, disruption doesn't come cheap: All three companies are currently posting net losses, and each has an extremely high price-to-sales ratio.
Nevertheless, disruptive companies often appear "expensive" even as their stock prices continue to rise. While there could be significant volatility in each of these stocks, for investors comfortable betting on high-growth disruptors, MongoDB, Twilio, and Okta should definitely be on your short list, if not in your portfolio.
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Billy Duberstein owns shares of MongoDB. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends MongoDB, Okta, and Twilio. The Motley Fool owns shares of Oracle. The Motley Fool has a disclosure policy.