One of the basic rules of investing in stocks is to “buy low”. It’s easier to do this when the stock market is going through a downturn, like the one we experienced in 2022. Many attractive stocks are trading at lower levels than they were a year ago, but that won’t last forever.
Eventually, the market will recover, the bull market will follow, and equities will become more expensive. Let’s take a look at two growth stocks to buy before that happens: series of letters (SQ -0.13%) SY Fiverr (FVR 0.59%). These tech stocks have plenty of oil left in the growing tank.
1. Block
Block is a fintech giant seeking to streamline the finances of businesses and individuals. It targets the former through Square’s ecosystem, which offers a variety of service products from point-of-sales systems to inventory and payments. Block’s Cash App, a peer-to-peer payment app, is an integral part of its business that offers a variety of banking services for individuals, from investments and crypto to direct deposit and debit cards.
As of September, Cash App had 49 million monthly active users, a 20% year-over-year increase. Block reports that the percentage of users using various services is growing rapidly. For example, 36% had a Cash App card, compared to 29% in September 2021 and 25% in September 2020. This means that the use of Block’s Cash App card is growing faster than monthly users.
This highlights one of the strengths of the Block company. Since it offers complementary services, its customers tend to subscribe to these solutions over time, even if they are attracted to the platform in search of specific services. And there’s even more room to grow within the company’s core ecosystem. In the third quarter, Block recorded a net profit of $1.57 billion, 38% higher than a year ago.
The company sees an addressable market (TAM) worth $70 billion for the Cash App ecosystem, while that of the Square platform is worth $120 billion. Block has proven that it can attract more customers to its platform, offer more services for them to sign up for, and drive adoption and revenue growth that way. Of course, there are some risks, especially those related to relying on fintech specialists Bitcoin negotiation, which is not very useful.
The value of cryptocurrencies has fallen this year, and it is likely that they will continue to fluctuate. Crypto Block’s ambitions are part of the market’s lag this year. Block seems to be on a solid path, albeit as a warning. Targeting the unbanked communities or other people who can benefit from the Cash App and small and medium enterprises has been very profitable.
But there is still room for growth in both populations, which should support the company’s revenue and profit growth. The next bull market will not leave this excellent fintech stock.
2. Fiverr
Fiverr is a platform that connects freelancers with businesses (or sometimes individuals) looking for their services. Advertising one’s work and attracting clients as a freelancer is not easy, but the Fiverr site makes it easy. It is also a convenient place for businesses that don’t have to post ads on various websites to find potential business owners. In other words, it’s a win-win.
Fiverr generates income through commissions. Business revenues and profits are likely to increase as the gig economy grows, something that happened before and during the pandemic and will continue for a long time. According to some estimates, the gig economy has grown 15 times more than the traditional labor market between 2010 and 2020. Fiverr estimates a TAM of $247 billion, and that’s only in the United States.
In the third quarter, the company reported revenue of $82.5 million – an increase of 11% year-on-year – and a drop in the bucket compared to its TAM. Although Fiverr has a lot of competition, one reason why it is one of the long-term winners in this field is that the more freelancers there are on the platform, the more companies tend to it’s about finding talent, and vice versa.
In other words, the value of a company’s domain increases as more people join it, also known as the network effect. This dynamic means that Fiverr can continue to attract users, which can drive business growth up and down the line. True, Fiverr remains unprofitable. Net loss in the third quarter came in at $11.4 million, slightly better than the net loss of $14.3 million in the third quarter of 2021.
In addition, business growth has slowed since the outbreak.
None of these issues should scare investors. Year-to-year comparisons will always be difficult after the gig economy grew through the worst of the pandemic. The most important thing is that Fiverr is still in the early stages of its growth, which means that it is too early to reduce the stock after a bad year. Those with the patience to stick with the company’s stock for the long haul should be rewarded.
