Although many great fortunes have come as a result of successful long-term investing, owning a business for decades or longer can not only be tough, but in many cases, it can be the wrong strategy. The reality is that given enough time, many companies will fail — often due to innovation.
However, some businesses are resilient enough that they deserve to be categorized as a “forever investment.” These types of businesses not only require a durable advantage over competitors, but they also need to be in an industry that’s sure to be around decades into the future.
Here are two companies that fit this mold.
Software that’s building the world
Autodesk (NASDAQ:ADSK) is the worldwide leader in design software for the architecture, engineering, and construction industries.
While the company certainly has a strong foothold within its target market, the industry itself is quite durable as well. The business of building and creating physical structures has been around for centuries, and barring any unforeseeable global catastrophe, should continue to be around for centuries to come. And Autodesk has helped bring it into the digital age.
The company’s holistic suite of tools allows its more than five million subscribers to navigate the entire building process from start to finish. In fact, its software is so comprehensive it typically takes users a few months or longer to learn the ins and outs of each solution. This process even begins at the university level for some users, so by the time they get started in the workforce, they’re well acquainted with the industry standard.
With this extensive training process in mind, firms are often reluctant to switch design software out of fear of a decline in productivity. This is likely one of the major drivers behind Autodesk’s leading market share position in the categories of building information modeling and computer-aided design.
As a testament to Autodesk’s durability, its revenue has grown steadily over the last decade, amounting to a 121% total increase since fiscal 2010 — even amid a recent shift from a licensing model to a subscription model. This new software-as-a-service approach has also unlocked greater profitability for Autodesk as the company’s adjusted operating margin has increased from 17% to 29% over the same period.
Even though it’s difficult to call any digital business a forever investment due to the sheer speed of change within the technology industry, the depth of Autodesk’s solutions makes its product very sticky in customers’ eyes. Autodesk should be here for the long haul.
Online dating is here to stay
Match Group (NASDAQ:MTCH) is an online dating conglomerate made up of more than 40 different brands, including notable apps such as Tinder and Hinge.
It wasn’t until relatively recently that dating began to leverage technology. In 2009, less than 20% of heterosexual relationships started online. Today that number stands at roughly 40%, and Match Group is reaping the benefits.
In the last five years alone, Match Group has increased its average subscribers by 118% as revenue more than doubled between 2016 and 2020. While that’s already impressive growth, online dating is expected to continue its ascent, according to industry estimates. But it’s not just the industry tailwinds that should help Match Group — the company benefits from scale as well.
In online dating, people naturally want to be wherever they can find the largest user base, as it gives them a higher probability of finding a potential partner. This means that since Match Group is home to the world’s largest online dating app, Tinder, it has been able to acquire users without having to spend too much in the process.
In the first quarter of 2016, for example, Match Group spent 42% of its revenue on sales and marketing. Fast-forward five years, and in the company’s most recent quarterly report, it spent only 22% of revenue on such expenses — a testament to the network effect it enjoys as the category leader.
Although the technology sector is often difficult to predict, both Match Group and Autodesk possess clear competitive advantages and dominate enduring industries — two criteria that are certainly fitting of a forever business.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.