The Motley Fool in recent years has done just fine with its Stock Advisor and Rule Breakers picks many of which have been in that sweet spot of technology growth stocks, but much of the marketing has shifted to their newer, higher-end services. Like most publishers, the Motley Fool seems to be focused on that “marketing funnel” — bring in free or low-cost subscribers (Stock Advisor is often available at $49/yr, refunds are easy to get), and then work to upgrade them to high-end services that offer model portfolios or more focused sector targeting (today’s teased service, Extreme Opportunities: Trend-Spotter is being offered at $1,799/yr, with no refunds).

And a few readers chimed in to ask about this latest Trend-Spotter offering publicized this morning, so I’ll give it a look today in the interest of timeliness. The general spiel is that the service is launching with a focus on five different “trends,” with two stock picks for each trend, but they only hinted at two of those picks today… so that’s about where our guessing is going to have to focus.

They say, also, that the goal is to identify stocks that are NOT in other Motley Fool services… which is going to be a challenge, and will probably mean that they’re going to have a lot of smaller and newly public companies in this grouping. Which should mean much higher risk and, they hope, higher potential for big returns.

The ads are mostly signed by Eric Bleeker, who has pitched a lot of these Fool “special opportunities” upgrade services over the years, but the people who are running the portfolio, and presumably selecting the stocks, will be Fool analysts Emily Flippen and Seth Jayson — I’ve never noticed Flippen’s name before, but she was apparently a Rule Breakers staffer, and Jayson has been a Fool writer and analyst for a very long time.

The way they’re trying to distinguish this service is with their concept of “Genesis Trends” — here’s a bit from the ad:

“I believe 2020 could be the beginning of the next era of technology and investing trends…

“Generating a wave of powerful new ‘Genesis Trends’ that today are only at their beginning.

“Because history has shown there have been past years when investors could suddenly discover the emergence of MANY powerful trends that appeared in a narrow window of time.

“The moment the Internet came about – wasn’t everyone in technology drooling about their next potential billion-dollar idea?

“And we saw when the Internet went mainstream in 1995, a MASSIVE wave of new trends emerged!

“In just a narrow window of time, e-commerce rose, search engines grew, and massive data centers began dotting the American landscape.”

The other examples given of these kinds of “genesis trends” are the mobile revolution, which was really fueled by the introduction of the iPhone, and they say we’re at the beginning of another big wave now…

“13 years later we could be at the beginning of a similar moment where a series of massive trends suddenly rise at once. I call it the DIGITAL WAVE.

“Now, coming into 2020, the reality is no one could have predicted this moment… It’s the result of perhaps millions of businesses and hundreds of industries all embracing a rapid digital shift at once in response to the coronavirus.”

And they sum up this idea of “genesis trends” here:

“… here’s what’s important about ‘Genesis Trends.’

“They’re moments when technologies or growth markets suddenly hit a point of rapid acceleration that effectively creates the beginning – or ‘genesis’ — of a new trend.

“During the emergence of ‘Genesis Trends’…

“Growth rates can suddenly reach new and often much higher levels

“Winners and losers of industries can be rapidly reset

“Companies that establish EARLY leadership positions become difficult to disrupt”

That actually calls to mind many of David Gardner’s oft-cited criteria for “Rule Breakers,” with particularly the focus on buying high-growth and buying “first mover” companies that Wall Street routinely calls “too expensive.”

And, of course, it’s objectively true that we’ve seen a massive shift in the economy and consumer behavior during this pandemic shutdown, with widespread theories that this six-month period has effectively accelerated several trends toward e-commerce and digital work and entertainment in a major way — those things were already happening, but in many cases somewhat slowly (like telehealth, for example, where adoption was painstakingly slow pre-COVID), and our global stay-at-home orders moved that growth ahead by anywhere from a few years to a decade.

It has indeed been shocking, and the hottest stocks have certainly reflected that shock — Amazon posted 100% revenue growth in a quarter, for crying out loud, and that shouldn’t be possible for one of the largest companies in the world (OK, I’m rounding up, it was 97%… but still), and that led to the equally crazy move in the shares, with the company’s market capitalization increasing by $600 billion just since January 1 (to accentuate that craziness, there are only seven publicly traded companies with a total market cap above $600 billion in the world).

Will those trends persist? Nobody knows for sure, but technological change does have a way of sticking once it has been adopted… which doesn’t mean that every e-commerce company will do fantastically well, but it does mean that they’ll probably have strong tailwinds because e-commerce has, probably permanently, taken a bigger chunk of consumer buying than was previously expected (as the Fool cites in their pitch, e-commerce went from about 16% of sales last year to over 27% so far this year). The three trends that they specifically highlight in the ad are e-commerce acceleration (Wayfair (W), Shopify (SHOP), Amazon (AMZN), etc.), work from home (Zoom (ZM), Fastly (FSLY), etc.) and remote healthcare (Teladoc (TDOC), Livongo (LVGO), etc.), but they also do mention a few others — streaming video, the “race for a vaccine,” and the “death of cash.”

So with that conceptual backdrop in hand, what is it that the Fool is actually teasing to get you to pull out your credit card? After all, publishers know that they usually have to at least hint at some of what’s behind the curtain in order to inspire a nonrefundable purchase… and that means we’ve got some clues to work with, so we can perhaps find some stock ideas and give you a little to think over before you consider plunking down your $1,799. That is, after all, real money. Even for those of us living behind the gilded gates at Gumshoe Castle.

Here are the very limited hints that they drop in the ad for the first stock:

“… with Trend-Spotter focused on being the solution for emerging trends, the advisors in the service are focused on bringing all-new recommendations into it.

“Here are a couple of examples that new members will find among the first 10 stocks inside Trend-Spotter:

“An online retailer that’s seen e-commerce orders accelerate at a tremendous rate in recent months. This is a stock our analysts have been researching, and it’s riding massive e-commerce tailwinds that recently emerged. But here’s the kicker – it’s presently NOT found in any other Motley Fool services.

I don’t think we’d be able to come up with an e-commerce company whose orders have NOT accelerated in recent months, so for that one we’ll definitely have to guess — and after musing on this for several minutes (in a row, I might add), I’ll guess that this is a pitch for Chewy (CHWY), the pet-focused e-commerce retailer.

Why Chewy? Well, it’s certainly a fast grower, and it has a strong niche business with better than 40% growth in the last quarter… but it’s also on an odd fiscal year with the last quarter ending in April, so although that incorporates six weeks of the pandemic shutdowns and did show some big acceleration, from 20% and 33% in the previous two quarters, I think it’s likely that their next quarter will provide accelerating growth beyond that. They report that next quarter in mid-September.

And as a little kicker for my guess, it’s also true that the Motley Fool did not disclose Chewy as a recommendation of any of their services in articles they published over the past few weeks… but they did disclose it as a recommendation in their “3 Hot Stocks Beating Amazon at its Own Game” article today, which means it was either recently recommended, or someone in the Fool’s disclosures department messed up. That’s no guarantee that it was recommended in this particular service, but it reinforces CHWY as my best guess.

Chewy looks downright cheap compared to some of the hot cloud computing growth stocks that have given everyone sweaty palms over the past few months, it trades at a price/sales ratio of only about 4, a lower valuation than even Amazon, but we should remember, of course, that it’s still a retailer… which means it has fairly tight gross margins (they have to pay for the pet food they sell, and shipping big bags of dog food is expensive).

The business should be pretty scalable if e-commerce continues to grow market share, so it’s possible that they’ll begin to turn a profit in the next few years — though with this ramp-up in sales, we’re all really guessing. Right now, analysts expect CHWY’s revenue to accelerate further to nearly 50% in the next quarter, but then de-accelerate and grow by roughly 50% over the next two years to a total of almost $10 billion a year… and that they’ll begin to post a profit sometime in 2022 (which will mostly be their fiscal 2023). They still have a pretty small market share, so there’s certainly potential for growth — they had about $4.3 billion in revenue last year, and estimates are that US spending on just pet food and treats (which is presumably most of they sell, though they also handle pet prescription medications) was a little under $40 billion that year.

With people treating their pets like family, a trend that has been in place for a long time, and focusing even more on them in this pandemic (including a big boom in “pandemic puppies” being adopted by folks who suddenly have time for training and socializing a pup), I can see how this might be a compelling “trend” pick… and their spending per customer is pretty strong, at $357/year as of their last shareholder letter, so it’s worthwhile for them to spend heavily on marketing to acquire those customers and tempt them with “subscription” plans for pet food that make it easy to lock those “pet parents” in to a long relationship (according to that Fool article today, Chewy gets 2/3 of its revenue from those subscription/autoship sales — which could be hugely important as they grow). I’ve certainly seen plenty of Chewy boxes on porches around my neighborhood, though I confess that I’ve never yet been a customer (and yes, Gumshoe Castle is practically bursting with pets).

Not a bad idea, but, of course, it’s also a company that has to compete directly with giants like Amazon and Walmart, so you never know when a competition might further pressure their margins. I haven’t bought Chewy, but I’d color myself somewhat tempted. If they can inspire loyalty in their customers, it might be worth looking at — they seem to also have some leverage with manufacturers, because it looks like they’re selling a lot of their products to consumers before they’ve even paid their wholesalers (payables are very high, receivables almost nonexistent, and that autoship/renewal feature probably means they don’t need to hold a ton of unnecessary inventory), which certainly helps with cash flow in the short term. That’s somewhat reminiscent of what Amazon did in the 1990s when they were getting started, selling books and essentially having them shipped directly from the publisher, without holding a lot of inventory… and probably paying the publishers several weeks after the consumers had paid them, giving an unprofitable retailer some room to breathe.

And a reason for patience? Well, if I were Chewy management I would be raising a lot of money right now, to build a war chest at a strong valuation and let them further build the business without worrying about near-term profitability — so although they don’t technically need cash right now, I’d be a little surprised if they don’t do a substantial secondary offering at some point in the next few months. Of course, they could post a huge beat and raise quarter in September and pop the shares up another 40% before that happens, I certainly don’t have any certainty about what the near future holds for Chewy (or anyone else, for that matter).

And, of course, there will always be at least a little bit of reluctance among the old guard… if only because they still have the image of the pets.com mascot branded into their brains as a reminder of the most well-known dot-com wipeout company of the 1990s.

And here are the clues for the second stock:

“There’s also a tiny stock worth a little more than a billion dollars that’s finally unifying the way companies manage social media into one simple package. It’s a massive market opportunity, but yet again, this company has never been recommended by a single Motley Fool service. Starting today, this recommendation can be found only inside Trend-Spotter!”

That “unify social media” goal has been the focus of a bunch of software startups in the past decade (Agorapulse, Social Report, Hopper HQ, socialoomph, Meet Edgar, Hootsuite, Buffer, just to name a few), though I guess probably nobody has done a great enough job at it to become dominant… so who might this be among public companies?

The best guess here is Sprout Social (SPT), which has roughly doubled in its short life as a public company but is not too far above a billion dollars in valuation (it’s rising today, currently at $1.6 billion). They went public in late December, and just priced a follow-on offering at $27.50, so the fact that the shares are well above $30 shows a certain enthusiasm among investors.

What’s to like? Well, it is a software subscription business, and investors love those… and it’s growing pretty nicely, with roughly 27% revenue growth last quarter… that’s not the blistering growth we’re seeing out of the big coronavirus winners, but is also trading at a fairly low valuation relative to other “cloud software” stocks, with a price/sales valuation of only 13. SPT hasn’t yet gotten any news coverage at Fool.com, nor have there been any disclosures as of yet of the shares being recommended by a Fool service.

Here’s how the company describes itself:

“Sprout empowers businesses around the globe to tap into the power and opportunity of social media. Our cloud software brings together social content and messaging, data and workflows in a unified system of record, intelligence and action. Operating across major social media channels like Twitter, Facebook, Instagram, Pinterest, LinkedIn Google and YouTube, we provide organizations with a centralized platform to effectively manage social media efforts across stakeholders and business functions.”

I can see how that’s important, and it’s quite possible that their resources as a public company will let them stand out from the pack of software providers in this space… but it is a crowded space, and I don’t really know much about the relative appeal of the competing services (as you might have noticed, Stock Gumshoe is not particularly well tuned-in to social media platforms).

Sprout reported last week, and said that their “key metrics accelerated through the quarter” as they raised their guidance for the year. They grew their customer count by less than 10% year over year, which I would say sounds pretty disappointing, but they did manage to grow their big customers faster — the customers who spend over $10,000 a year on Sprout Social grew by 54% over last year, which is impressive. Their software is not terribly expensive, at $249/seat/month for the top tier product, so $10,000 would mean at least three or four users at that company.

Their guidance was for more of the same, with revenue growth in the next quarter of roughly 25%, and total revenue growth for 2020 of about 26%, to $129 million. They are selling some additional shares, but only about 1.5 million of them will be new shares (most of the offering is for existing shareholders to get out, as is common in the year following an IPO), so the “dilution” from this sale is only about 3% — so you’re still getting revenue growth of about 25-30%, and a valuation of about 13X revenue. The analysts are understandably optimistic about the shares, since the first wave of analyst reports about a new company tend to come from the investment banks that did the underwriting, but even they don’t see SPT turning a profit for several years… though they do think revenue will steady grow at this 25-30% pace for at least the next couple years.

Sprout Social isn’t a company I know anything about, so I’m a little reluctant to get excited about it here — that level of growth is not quite up to the “blistering” level, and given the huge variety of software packages available for social media management the only obvious advantage I see for Sprout is that they’re the only pure-play publicly traded company in this niche (at least, that I know of — maybe there’s another one hiding out there somewhere). I’d think that this would be a critical technology to eventually be built in to customer, sales, public relations and advertising software packages, so if I were digging into Sprout Social I’d start by looking into what kind of integrations or partnerships they might have (if any).

I’m willing to stipulate that better-managed social media is a “genesis trend” idea that could have some legs, but I’d have to know more to bet on little Sprout being the eventual winner… maybe that’s just me being too cautious, we’ll see. I’d be curious to hear what you think

As, indeed, I’d like to know what you think about this whole idea — do you see big and permanent “genesis trends” emerging here? Do you agree that Chewy or Sprout Social might be key players in those tends? Have other ideas that you think are stronger, or better guesses to match those limited Fool clues? Let us know with a comment below.

Disclosure: Of the stocks mentioned above I own shares of and/or call options on Teladoc, Amazon, Shopify, Google parent Alphabet, Twitter, Fastly, and Apple. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.