Investors have had a particularly challenging year. The benchmark S&P 500 rose 27% in 2021, but in 2022 the index reversed course and entered a bear market, on pace to have its worst year since the Great Recession. The question of when the stock market will recover is the toughest part, however.
Nobody knows the answer to that question, which is unfortunate, but wise investors do know one thing: a bear market is a chance to purchase high-quality equities at low prices. For instance, the share prices of Fiverr International (FVRR -3.11%) and Zoom Video Communications (ZM -0.48%) have fallen by 90% and 88%, respectively, yet both companies may prosper when the economy improves and the next bull market occurs.
What investors need to know is as follows.
Fiverr International: Changing how work will be done
One of the pillars of the gig economy is Fiverr. Its marketplace links buyers (companies) and sellers (freelancers) of digital services, and its product catalog has over 550 categories that span nine industry verticals, ranging from business and lifestyle to programming and technology.
Additionally, Fiverr offers related services that strengthen its relationships with customers and sellers. For instance, task management software, educational materials, and marketing tools are available to freelancers, while collaboration and freelancer management solutions are available to enterprises. These complementary services not only increase the marketplace’s stickiness but also help Fiverr more efficiently monetise its operations.
In fact, in the third quarter, its take rate—which is the highest in the business and measures revenue as a proportion of total spend—rose by 160 basis points to 30%. When compared to the 15.4% take rate that competitor Upwork posted during the same quarter, that statistic is quite outstanding. Despite this, the expansion of Fiverr has slowed down due to the unstable economic environment. Non-GAAP (adjusted) net income climbed 11% to $0.21 per diluted share in the third quarter, although third-quarter sales only increased by 11% to $82.5 million.
Shareholders should prepare for a further slowdown in growth in the future. Given the financial strains facing many companies, Fiverr may have trouble attracting new customers and encouraging repeat business in the near future. Investors have reason to think Fiverr may reaccelerate growth if economic circumstances improve, but those are just short-term problems.
The gig economy in the US has a $247 billion potential market, and Fiverr has just begun to scrape the surface of it. By 2027, more than half of US employees will engage in some kind of freelancing, predicts Statista. A smart moment to purchase a modest investment in this growing company is right now since shares of Fiverr are now selling at a discount of 3.4 times revenue, which is lower than the three-year average of 18.7 times sales.
Zoom: Streamlining Business Communications
Although Zoom’s videoconferencing software, Zoom Meetings, is its most well-known product, the company also offers a comprehensive suite of cloud communications tools. Recently, the business introduced two artificial intelligence software solutions that boost efficiency for teams working in sales and customer service, as well as a customer service solution (Zoom Contact Center) to its platform (Zoom IQ for Sales and Zoom Virtual Agent).
As a result of the epidemic, Zoom Meetings were widely used due to distant work and social isolation. In reality, no software firm has ever attained a $2 billion annual revenue run rate more fast than Zoom did. However, things are quite different now from what the company stated during that time. In the most recent quarter, revenue increased just 5% to $1.1 billion, while non-GAAP net income decreased 4% to $1.07 per diluted share.
The investment thesis is really better now than it was a few years ago, and Zoom is still in a good position to reaccelerate growth when the economy stabilizes and corporate spending picks up. Zoom’s cloud communications platform enables clients to consolidate spending with a single provider, which lowers costs and complexity for them. In other words, Zoom provides a comprehensive software package that may take the place of point solutions and do away with the need for on-site hardware.
Even more, Zoom is well positioned to promote the uptake of complementary technologies like Zoom Phone, Zoom Rooms, and Zoom Contact Center since it is the market leader in videoconferencing software. And the business is using that chance. In August 2022, Zoom Phone had more than 4 million users, up from 2 million in August 2021. The most recent quarter saw growth for Zoom Rooms, while Zoom Contact Center and Zoom IQ for Sales have had some early success, according to management.
However, none of those complementary goods now make nearly 10% of overall sales, indicating that Zoom has only just begun to tap into its upselling potential and its $125 billion addressable market by 2026. However, investors may see some early momentum in the RPO, which is a leading sign of revenue. In the most recent quarter, RPO increased 32%. That signals brighter times for Zoom in the future.
The company’s shares presently trade at the lowest value in its history, only 4.9 times revenues. This makes for an extremely alluring purchasing opportunity.
Fiverr International employs Trevor Jennewine. The Motley Fool supports and has holdings in both Zoom Video Communications and Fiverr International. The Motley Fool advises using Upwork. There is a disclosure policy at The Motley Fool.
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