So far in 2022, tech stocks have taken a beating. Year to date, the Nasdaq Composite is down 16.4% and many of the biggest tech stock names are down even more. On the bright side, some great tech stocks are significantly less expensive now than they were a few short months ago.
For three companies in particular, recently reported earnings further confirmed their positions of strength in their respective industries, making them my top tech stocks to buy in March. Let's dig in to see why.
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1. PayPal Holdings
When PayPal Holdings (PYPL 0.64%) reported its fourth-quarter and fiscal year 2021 earnings in early February, the market responded harshly, with shares selling off 25% the next day. Taking a step back to view the whole year, the results were not as bad as one might have assumed. For 2021, revenue was up 18%, total payment volume (TPV) grew 33%, and the company generated $5.4 billion in free cash flow. Management also gave fairly conservative guidance, predicting fiscal year 2022 revenue growth in the range of 15% to 17%. This is likely what caused the market's negative reaction.
In the earnings call, management talked about a shift in focus away from high levels of user growth and toward better monetization of its active users. PayPal has used internal data to determine that this shift will mean better results for the company. In addition, by the second half of this year, PayPal will no longer need to account for the effect of a change in its partnership with eBay or have to compare results to the strong pandemic quarters where so much growth was pulled forward. In short, 2022 should end with PayPal's results looking as strong as they actually are to investors.
With share prices now down 67% from their 2021 high, this is a great time to consider adding PayPal stock to your portfolio. Too many former investors are missing the forest for the trees on this stock and PayPal actually has a bright future ahead.
2. Fiverr International
Fiverr International (FVRR 1.79%) is at the forefront of the changing landscape of employment. As the gig economy continues to grow, Fiverr offers a platform that helps connect freelance workers with those looking to hire them. Fiverr's recently reported earnings show its position of strength in this market. Revenue grew 57% year over year and 178% over the past two years, and an already healthy gross margin increased 10 basis points to 82.6%.
More important for investors to consider are Fiverr's user metrics. 2021 ended with 4.2 million active buyers on the platform, up from 3.4 million at the end of 2020, a 23% increase. Spend per buyer rose 18% year over year, and the take rate (essentially Fiverr's cut of the business transactions on its platform) increased to 29%. This take rate is significantly higher than Upwork, Fiverr's main competitor, which has a take rate of 13%. Fiverr is able to attract buyers and sellers of gig work while profiting nicely from its ability to facilitate those connections.
Much like PayPal, Fiverr's stock has been hit hard over the past year and is trading down 74.4% from its 52-week high. Its price-to-sales (P/S) ratio stands at 9, which means Fiverr trades for the same multiple it did two years ago. For comparison's sake, over that same time frame Fiverr has grown revenue by 178%.
3. Twilio
Twilio (TWLO 0.10%) is a leading cloud communication platform. If you've ever communicated with a Lyft driver or received a text message from an Airbnb host, you've used Twilio's products. In 2021, Twilio's revenue grew 61% year over year, continuing a trend that has resulted in a compound annual growth rate (CAGR) of 59% since 2016. Over the past two years, year-over-year quarterly revenue growth has never dropped below 34%.
Twilio ended the year with 256,000 active customer accounts, up from 221,000 at the end of 2020. These accounts are also spending more on the platform. Twilio's dollar-based net expansion rate, which tells us how much more a cohort is spending compared to the previous year, hasn't dropped below 125% in the past two years.
One area where Twilio has yet to make progress is profitability. This isn't uncommon for companies in growth mode, but eventually investors want to see steps toward becoming profitable. In the Q4 earnings call, management stated they expect 2022 to be the last year Twilio will generate a non-GAAP operating loss. The company will still be prioritizing growth, but management feels they have enough scale and can become more efficient in their operations.
With strong past performance and management that sees light at the end of the tunnel to profitability, there are many reasons to consider buying Twilio shares. One more reason is that Twilio is trading at a P/S of 9, near the lowest that multiple has ever been. Shares have almost never been this inexpensive, making Twilio a very attractive tech stock to buy in March.
