Recent market volatility has hit growth stocks particularly hard. In an effort to subdue soaring inflation, the Federal Reserve is expected to raise interest rates at least three times in 2022. And while that move should curb rising prices, it will also make it more costly to borrow money, which threatens to slow the expansion of high-growth companies that need to issue debt. Not surprisingly, Wall Street's enthusiasm for such investments has evaporated.
That being said, those headwinds are temporary, and downturns are often great buying opportunities. Growth stocks in the S&P 500 have produced a total return of 973% since March 2009, crushing the 607% total return in value stocks, according to research from Yardeni. That data makes a strong case for adding a few high-growth companies to your portfolio, especially with so many stocks trading at a discount.
For instance, Snowflake (SNOW 2.53%) and Fiverr International (FVRR 1.34%) have fallen 28% and 74%, respectively, from their all-time highs, but the future still looks bright for both companies. Here's what you should know.
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1. Snowflake
Modern enterprises generate a tremendous amount of data, and digital transformation efforts will only reinforce that trend in the coming years. Snowflake helps its clients manage and make sense of all that information. In fact, its cloud-based platform can handle a number of workloads that have traditionally required multiple software products, including data ingestion, storage, analytics, and data-driven application development.
Snowflake also makes it possible for clients to securely share data, both internally and externally, simplifying collaboration among employees, partners, and customers. Clients can also buy and sell data on the Snowflake Data Marketplace. In both cases, that functionality creates a network effect -- as more clients join Snowflake, more data can be exchanged through its platform.
Financially, Snowflake is firing on all cylinders. The utility of its platform and the benefits of its consumption-based, cloud-agnostic business model (i.e. Snowflake is built across all three major public clouds) have clients throwing money at the company. In the third quarter, its customer count grew 52% to 5,416, and the average customer spent 73% more. Over the past year, revenue skyrocketed 110% to $1.0 billion, and the company generated positive free cash flow of $4.4 million.
Going forward, Snowflake is well positioned to maintain that momentum. Management puts its addressable market at $90 billion, showing the demand for powerful data analytics tools. And the company is executing on a strong growth strategy, including the recent launch of "Powered by Snowflake," a program that helps clients accelerate the design and adoption of data-driven applications in Snowflake's cloud. Organizations like BlackRock, Adobe, and Instacart have already tapped Snowflake for its expertise in this area, and more are sure to follow. That's why this growth stock looks like a smart long-term investment.
2. Fiverr International
Fiverr has become a key part of the gig economy. Its platform acts as a marketplace that connects sellers of digital services (i.e. freelancers) with buyers (businesses). Its catalog lists gigs across nine different verticals, including graphics, programming, and digital marketing. Fiverr also provides value-added services to freelancers, including online training courses through Fiverr Learn and task management tools through Fiverr Workspace.
Fiverr also leans on artificial intelligence to personalize the experience for each buyer, using transaction and engagement data to recommend relevant gig workers. As a whole, Fiverr's broad portfolio of gigs and its end-to-end approach to the freelancer lifecycle have created a powerful network effect -- more buyers means more sellers, and more sellers means more buyers.
On that note, Fiverr's take rate hit 28.4% in the most recent quarter. That phenomenal figure is twice as high as rival Upwork's take rate, showing the value Fiverr creates for clients. Consequently, active buyers jumped 33% to 4.1 million, and spend per active buyer climbed 20% to $234. Over the past year, revenue surged 68% to $274.8 million, and Fiverr generated positive free cash flow of $31.5 million.
Looking ahead, there is plenty of room for this business to grow. Fiverr puts its addressable market at $115 billion, and management has outlined a robust growth strategy, which is focused in part on expanding upstream.
On that note, Fiverr recently acquired Stoke Talent, a freelancer management platform built for medium- and large-sized business. Stoke helps clients onboard, budget, and pay gig workers, meaning Fiverr can now offer services to enterprises with existing freelancer workforces, even if those freelancers work offline.
That last point is particularly important, because the offline market is still orders of magnitude larger than the online freelancing market. And with Fiverr down a whooping 73% from its high, now looks like a good time to buy this stock.
