Since peaking in early 2022, the S&P 500 has dipped in and out of correction territory, and the index currently sits 9% below its all-time high. But the growth-focused Nasdaq Composite currently sits 14% off its high, and many individual stocks have fallen much further, reflecting investors' uncertainty regarding the impact of high inflation, Russia's invasion of Ukraine, and the prospect of rising interest rates.
For instance, Roku (ROKU -10.29%) and Fiverr International (FVRR 3.74%) have plunged 70% and 72%, respectively. But Roku is a key player in the streaming industry and Fiverr is a critical part of the gig economy, and both stocks look relatively cheap at their current valuations. Here's what you should know.
Image source: Getty Images.
1. Roku
Roku connects viewers with streaming content, allowing users to manage their premium and ad-supported services from a single platform. More importantly, Roku OS is the only purpose-built operating system for connected TV (CTV), a feature that lends itself to a better experience for viewers. And the company has parlayed that edge into a substantial competitive advantage.
In the fourth quarter, Roku once again ranked as the most popular streaming platform, accounting for nearly 32% of all viewing time. The next-closest competitor was Amazon Fire TV with 16.5% market share. Better yet, Roku continued to outpace the broader industry -- streaming hours grew 15% in the fourth quarter, while global streaming time rose 7%. In other words, Roku is still gaining market share.
Not surprisingly, the company turned in another strong financial performance in 2021. Its user base rose 17% to 60.1 million active accounts, revenue soared 55% to $2.8 billion, and the company posted a GAAP profit of $1.71 per diluted share, up from a loss of $0.14 per diluted share in the prior year.
Going forward, Roku's addressable market should continue to expanded as more viewers shift away from traditional pay TV options. In fact, CTV ad spend is expected to reach $100 billion in the U.S. by 2030, according to BMO Capital. And management is working to capitalize on that opportunity by moving into original content. Last year, the company added over 50 original titles to its own ad-supported streaming service (The Roku Channel), and those efforts have shown early signs of success. Case in point: The Roku Channel ranked among the top five channels on the platform during the third and fourth quarters.
Here's the bottom line: Roku is the leading streaming platform by a wide margin, and as more viewers cancel pay TV services, more ad dollars will move to CTV platforms. That's a compelling investment thesis in its own right. But Roku currently trades at about seven times sales, which is a bargain compared to its average valuation of 16.3 times sales over the last three years. That's why now is a good time to add this growth stock to your portfolio.
2. Fiverr International
Fiverr works like an e-commerce marketplace, except it connects buyers (businesses) and sellers of digital services (freelancers). Since its launch 12 years ago, the platform has expanded from eight service categories to 550 service categories, strengthening the flywheel effects that fuel its business. In other words, by connecting with a broader range of gig workers, businesses are more incentivized to look for talent on the platform, which then brings more freelancers to Fiverr, and so on.
Fiverr has further supercharged that flywheel with its comprehensive approach to the freelancer lifecycle. Beyond its marketplace, the company provides access to learning content through Fiverr Learn and task management tools through Fiverr Workspace, helping freelancers grow their expertise and manage their gigs. If you want to see that flywheel in action, take a look at the company's financial performance.
In 2021, active buyers grew 23% to 4.2 million, and spending per active buyer jumped 18% to $242. As a result, Fiverr's revenue soared 57% to $297.7 million, and the company posted positive free cash flow of $35.5 million, up from $13.1 million in the prior year. Better yet, Fiverr's take rate -- revenue as a percentage of total spend -- expanded 210 basis points to 29.2%, showing its pricing power. As a point of comparison, rival Upwork saw its take rate fall 60 basis points to 14%.
Since the beginning of the pandemic, people have taken time to reevaluate their priorities, and many of those people left their former jobs in what has been called "the great resignation." People want more flexibility and a better work-life balance, and freelancing offers both. To that end, a recent study from Upwork suggests that 20% of U.S. employees, or 10 million people, are considering joining the gig economy. But even if that doesn't happen, Fiverr puts its market opportunity at $115 billion, and management is working on a robust growth strategy that aims to bring new buyers to the platform by moving upmarket, growing its gig catalog, and expanding its geographic footprint.
Currently, Fiverr trades at about nine times sales, significantly lower than its historical average of 20.5 times sales since going public in June 2019. That's why now looks like a good time to buy this beaten-down growth stock.
