Technology companies account for more than half of the 3,700 components of the Nasdaq Composite, so the index is often used as a proxy for the broader tech sector. Currently, the Nasdaq is 24% off its high, putting it in bear market territory. That sheds light on just how hard many tech stocks have been hit during the ongoing market downturn.
However, the Nasdaq has weathered several past downturns, and they have all ended the same way: A bull rally eventually comes along and wipes away all losses. That doesn't mean every tech stock will be a winner, but Sea Limited (SE -0.42%) and Fiverr International (FVRR 2.94%) are backed by a compelling investment thesis, and both stocks look like smart buys right now.
Here's why these two top growth stocks are worth buying right now.
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1. Sea Limited
Holding company Sea Limited is a powerhouse in Southeast Asia, which itself is one of the fastest-growing regions of the world in terms of economic prosperity. Sea breaks its business into three segments: e-commerce (Shopee), digital financial services (SeaMoney), and digital entertainment (Garena).
Shopee is the most popular online marketplace in Southeast Asia and Taiwan, receiving more than twice as many monthly visitors as its next closest rival. To reinforce its leadership position, the company provides a variety of value-added services for merchants. That includes solutions for fulfillment, logistics, and advertising, as well as payment processing services through SeaMoney. That strategy appears to be working. In 2021, Shopee was the most downloaded shopping app in the world.
Garena is a video game developer and publisher. Its flagship title Free Fire is available across 130 markets, and it has ranked as the highest-grossing mobile game in Southeast Asia and Latin America for 11 consecutive quarters. Better yet, whereas Shopee and Sea Money operate at a loss, Garena is highly profitable, which allows Sea to reinvest aggressively in e-commerce and digital payments.
Financially, Sea's performance was a bit mixed over the past year. Revenue soared 105% to $11.1 billion, driven by strong consumer adoption of Shopee and SeaMoney. But the company generated negative cash from operations of $833 million, due primarily to a widening operating loss in its e-commerce business. However, management expects Shopee and SeaMoney to achieve positive cash flow on an adjusted basis by the end of next year.
Looking ahead, internet penetration is expanding rapidly in Southeast Asia. By 2025, e-commerce spend will hit $234 billion, and digital payment volume will reach $1.2 trillion, according to Bain & Company. And Statista values the mobile game market at $175 billion by 2026. That puts Sea in front of a sizable market opportunity. Better yet, shares currently trade at 4.1 times sales -- far cheaper than their three-year average of 15.7 times sales -- so now looks like a great time to buy this growth stock.
2. Fiverr International
Fiverr powers the multi-billion-dollar gig economy. Its marketplace connects businesses with freelancers that specialize in trendy skills like 3D design and game creation, cybersecurity management and data analytics, and NFT development and blockchain applications. In fact, its platform lists gigs that span nine verticals and 550 categories.
Fiverr supercharges its network effect by offering a number of value-added services to freelancers, including tools for learning and development, workflow management, and marketing. That incentivizes gig workers to join Fiverr, which ultimately brings more businesses to the marketplace, creating a virtuous cycle. Additionally, Fiverr leans on artificial intelligence to surface personalized recommendations for businesses, making the talent discovery process more efficient.
Fiverr's robust offering of products and services has made it a cornerstone of the gig economy, which has translated into solid financial results. One metric investors need to see is the take rate, which measures revenue as a percentage of spend on the platform. In the first quarter, Fiverr's take rate hit an impressive 29.6%. For context, rival Upwork posted a take rate of 14.1%. In turn, revenue soared 41% to $316 million over the past year, and the company generated $38 million in free cash flow, more than double what it made in the prior year.
Going forward, Fiverr has plenty of room to grow its business. Gig work typically means flexible hours and the freedom to live anywhere. Many people find that quite compelling. In fact, more than 50% of the U.S. workforce will participate in the gig economy by 2027, up from 36% in 2021, according to Statista. Fiverr should be a major beneficiary of that trend.
Currently, Fiverr trades at a reasonable 5 times sales, much cheaper than its three-year average of 19 times sales. That's why now is a good time to buy this growth stock.
