In the early days of the pandemic, the broader market fell sharply in a matter of weeks, then promptly rebounded to deliver impressive returns in 2020 and 2021. In fact, the S&P 500 actually closed at a new high on 70 different occasions last year, a figure not seen since 1995. Unfortunately, that frenzied atmosphere came alongside business closures and supply chain disruptions that caused an uptick in inflation.
In response, the Federal Reserve is expected to raise interest rates three or four times in 2022, a move that makes it more difficult for companies to fund growth with debt. Not surprisingly, investors have rotated out of growth stocks. For instance, shares of Fiverr International (FVRR 1.85%) and Global-e Online (GLBE 1.48%) currently trade 75% and 55%, respectively, below their all-time highs. That creates a buying opportunity for long-term investors.
1. Fiverr International
Fiverr is a core player in the gig economy. Its marketplace connects businesses with freelancers, and its catalog lists over 500 digital service categories, including marketing, graphic design, and website development. For businesses, that means easy access to a global pool of talent. And for freelancers, Fiverr gives them the flexibility to work whenever and wherever they want.
To draw gig workers to its platform, the company supplements its core marketplace with a number of value-added services, including online training courses through Fiverr Learn and advertising solutions through Promoted Gigs. Fiverr also leans on artificial intelligence to personalize the experience for each buyer, so every action and transaction on the platform makes search results and suggestions more relevant. Collectively, those features have made Fiverr popular with both freelancers and businesses.
In the most recent quarter, active buyers jumped 33% to 4.1 million, and spending per buyer rose 20% to $234. Even more impressive, Fiverr's take rate -- revenue divided by gross merchandise value -- hit 28.4%. More than any other data point, that figure underscores the value the company creates for its clients. As a result, revenue soared 42% to $74.3 million. Fiverr also generated $8.8 million in free cash flow during the quarter, despite being unprofitable on a GAAP basis.
Looking ahead, the company puts its market opportunity at $115 billion, and management has outlined a sound growth strategy focused on bringing more buyers and sellers to the platform, adding new freelancer services and gigs, moving up market, and expanding internationally. As one example, the company is building out a task management platform, Fiverr Workspace, that will help freelancers manage their business both on and off Fiverr.
After the latest sell-off, Fiverr stock trades at 11 times sales, significantly lower than its average valuation of 20.8 times sales since going public. That's why now looks like a good time to add this growth stock to your portfolio.
2. Global-e Online
Global-e specializes in cross-border e-commerce. Its platform helps businesses expand into new geographies, a process that has traditionally been complicated by barriers in language, currency, and regulatory requirements. To that end, Global-e integrates with a merchant's website to localize language, pricing, payment, and delivery options on a market-by-market basis, increasing international conversion rates, often by more than 60%.
Additionally, Global-e helps merchants calculate and pay import duties and taxes, provide customer service, and manage returns in international markets. Moreover, each transaction and web interaction generates data, and Global-e leans on artificial intelligence to turn that data into actionable insights for its merchants, creating a flywheel effect that should boost conversion rates over time.
In the third quarter, gross merchandise volume (GMV) -- the total value of all sales -- jumped 86% to $352 million. In turn, revenue rose 77% to $59.1 million, and gross margin increased 840 basis points to 38.6% as high-margin service fee revenue outpaced growth in fulfillment fees. On the bottom line, Global-e generated $5.1 million in free cash flow, though it's still losing money on a GAAP basis.
As part of its growth strategy, Global-e has formed partnerships with Meta Platforms' Facebook and Shopify. The latter is particularly noteworthy, because Shopify serves over 1.7 million businesses worldwide, and tapping into its clientele could accelerate Global-e's growth in a big way. In fact, the company recently added a high-profile Shopify customer in Netflix.
Going forward, Forrester Research believes the cross-border e-commerce market will reach $736 billion by 2023. For context, Global-e processed $1.2 billion in GMV over the past 12 months, a figure that accounts for less than 0.2% of its addressable market. But that should change in the years ahead. Global-e has demonstrated that it can create value for merchants -- in fact, the company's net retention rate has typically been over 140% since 2018, meaning the average client is spending 40% more each year.
Finally, Global-e currently trades at 21 times sales, significantly below its historical average of 35.5 times sales. That's why this growth stock looks like a smart buy right now.