Equities are doing better this year than in 2022 -- at least, so far. However, the stock market's gains haven't been nearly enough to completely recoup the losses of the most recent bear market. That means investors can still find plenty of quality growth stocks that are down massively over the past 12 months and look like great buys given their long-term prospects.
Let's consider two examples: Fiverr (FVRR 0.97%) and PayPal (PYPL -2.98%).
1. Fiverr
Fiverr runs an online platform that helps connect freelancers and businesses. It became a publicly traded company in June 2019, which turned out to be impeccable timing. The coronavirus pandemic officially started some nine months later, leading to a boom in the gig economy and PayPal's share price soaring.
While this tailwind has slowed down compared to the early days of the outbreak -- a key reason why Fiverr's shares are down massively in the past 12 months -- the gig economy isn't just some pandemic trend. In fact, it will likely continue growing over the next decade and beyond.
Working freelance has its advantages, most notably convenience and flexibility. Some want to spend more time with their families, and others even travel the world while freelancing, which is much harder to do when one is tied to a job in a specific office. While estimates vary, some analysts predict a compound annual growth rate (CAGR) of 16.2% through 2027.
But why think Fiverr could be one of the main beneficiaries?
Here's why. The company has already built a reputation as one of the largest freelancing platforms. It ended 2022 with 4.3 million active buyers, an increase of 1% year over year. The more its ecosystem grows, the more attractive it becomes to future freelancers and businesses. That is, the value of Fiverr's platform increases as more people use it, an example of the network effect.
Last year, Fiverr's revenue increased by 13.3% year over year to $337.4 million, a much slower top line growth than in previous years.
FVRR Revenue (Annual YoY Growth) data by YCharts
However, the company made progress elsewhere. Fourth-quarter spending per buyer of $262 climbed 8% compared to the same period in 2021. Fiverr isn't profitable yet. Its net loss per share of $1.94 in 2022 worsened compared to the $1.81 reported in 2021. And its slower revenue growth rate last year and likely this year, coupled with the red ink on the bottom line, could make it vulnerable in the short run.
The good news is that management is focusing on cutting costs to increase efficiency and profitability. And with a $247 billion total addressable market, Fiverr's long-term prospects look strong. Even grabbing 1% of that total in the next decade would allow the company's top line to clock in a CAGR of about 22% through this period.
Those kinds of results can allow Fiverr to deliver market-beating returns along the way.
2. PayPal
PayPal is helping drive digital payments adoption. This industry is in high growth mode, thanks partly to the increasing importance of the e-commerce industry. It generates money through the various fees it charges to facilitate transactions. PayPal's revenue and earnings will continue to rise as long as its services' usage grows, and that is precisely what has happened historically for the company.
For instance, between 2015 and 2022, PayPal's active accounts grew at a CAGR of 14% to 435 million. The company's total payment volume (TPV), the dollar value of all transactions conducted on its platform, clocked in a CAGR of 24%, ending 2022 at a massive $1.36 trillion. And PayPal's revenue in 2022 was $27.5 billion, which expanded at a CAGR of 16% in this period.
However, that's the past, and it is no guarantee of future results. Fortunately, there are good reasons to believe that PayPal can continue down that path.
PayPal benefits from a competitive edge thanks to its strong brand name and network effect. The company is the most accepted digital wallet among the 1,500 largest retailers in North America and Europe, with 79% adopting PayPal as a payment method. As more businesses join its ecosystem, it attracts more customers, and vice versa. That dynamic will serve the company well as the digital payments revolution marches on.
PayPal has underperformed the market over the past year, largely due to the challenging economy and difficult year-over-year comparisons. The growth rate of its revenue, TPV, and number of active accounts are down compared to 2021. But as the company's growth between 2015 and 2022 shows, zooming out and considering PayPal's trend over a more extended period than just a couple of years helps paint a very different picture.
PayPal's key metrics should maintain their momentum over the long run, with the company's financial results fueling much better performances on the stock market than what it has shown in the past 12 months. That makes its shares a buy, especially at its current levels.
