The stock market has been soaring for a good year since it plummeted last March. Market crash predictions are common, and one of these days, it will happen. The broad market outperformance has been out of sync with the global economic situation, and it does feel like the bubble could burst at any moment.
In such a situation, investors should buy shares of Lemonade (LMND -0.05%), Airbnb (ABNB -1.94%), and Fiverr (FVRR 0.23%). They carry rich premiums as of this writing, but in the fallout of a broad market downturn, they should be at the top of your watchlist.
Appealing to a new generation of insurance buyers
Lemonade has been around since 2016, selling renters and homeowners insurance, and it dazzled investors during its market debut last July. Shares more than doubled from their IPO price of $29 per share on the first day of trading, and they more than quadrupled by year end. The stock has come down since then, now trading below 50% of its 52-week high, but it still boasts a price-to-sales valuation of 59, making it quite expensive.
The insurtech, or insurance technology, company has amassed over a million customers in its short lifetime, reaching a milestone that took older insurance companies decades. Insurance buyers are drawn to Lemonade's customer-centric and speedy service -- it has paid out claims in as little as one second.
Lemonade launched pet insurance last July, and life insurance rolled out this year. It's collecting troves of data to power its services, and this is how it can ask customers a series of questions and instantly offer a price quote for a policy and provide instant claims approvals (though only 30% approvals go this route -- the rest go to a live representative).
This is also how the company has been able to scale its products and launch new ones. There is now at least one product offered in all 50 U.S. states, and the company recently announced the early stage launch of its auto insurance offering, Lemonade Car. Management believes they can catch policy buyers early, perhaps when seeking a low-priced renters policy, but then for the same customer acquisition cost, keep them on as they cycle through life events and require more expensive policies.
Fourth-quarter 2020 results didn't impress investors, sending the stock plummeting, but you should think of this market reaction as the inevitable ups and downs of emerging companies. There's so much potential here for Lemonade to disrupt a $5 trillion global industry, and this is a great stock to load up on in the event of a crash.
Creating a new travel industry
Airbnb has upended the travel industry with its platform for vacation rentals that connects property owners and travelers. There are many benefits to its system -- stays often cost less than a hotel, host and property ratings let users know what to expect, and travelers can enjoy locations and unique experiences that may lack traditional acccommodations.
That's why investors so highly anticipated Airbnb's IPO, and they sent the stock soaring in its first few months on the market. As with Lemonade, that enthusiasm has waned recently, but the stock is still trading at 31 times sales (or 22 times pre-pandemic 2019 revenue).
The company still faces the challenge of reduced travel due to the pandemic, and market conditions will need time to recover. Fourth-quarter revenue decreased 22% year over year, and gross booking value declined 31%. That's an improvement over the beginning of 2020, but it's understandable the stock has lost steam, especially given its high valuation.
But as travel comes back, sales and GBV should begin to gain momentum. Long term, management sees a serviceable addressable market of $1.5 trillion and a total addressable market of $3.4 trillion, making 2020 sales of $3.4 billion just a starting point for long-term growth.
The rise of the gig economy
The world has changed after the pandemic, and one prominent way is how we work. Fiverr, which connects freelancers and clients, is at the forefront of the work-from-home revolution, and it's poised to lead this space even after the pandemic.
Fiverr went public in 2019. Its stock struggled that year, but it went on to gain over 700% in 2020 before losing steam this year as part of the broader tech sell-off. Trailing the S&P 500 year to date, shares still trade at 39 times sales.
2020 revenue increased 77% year over year, but Fiverr's $190 million top line is a fraction of its $115 billion total addressable market. And the market is wide open as only a tiny portion of freelancing has migrated online. As the industry goes digital, and more people work from home, there's vast upside for Fiverr.
So why Fiverr? It has a well-established platform with 500 freelance categories and a large suite of digital capabilities. It also has high net promoter scores from both freelancers and buyers, and happy users will continue to pay their fees to connect over the platform. That's already happening: In the fourth quarter, annual spend per buyer increased 20% year over year to $205.
Fiverr, Lemonade, and Airbnb are all great companies disrupting large traditional industries, giving them a long runway for growth. If you have a greater appetite for risk, buy them now as recent declines present an opportunity of their own. Otherwise, if the market slides and prices drop further, even more conservative investors should consider adding these stocks to their portfolio.