One of the few guarantees you'll get on Wall Street is that there are no guarantees when it comes to short-term stock market movements. Following a phenomenal 2021, all three major U.S. stock indexes sank into a bear market last year, with the growth-driven Nasdaq Composite (^IXIC -0.42%) falling the hardest. By year's end, the Nasdaq rang the register with a loss of 33%.
Although bear markets can be temporarily unpleasant and cause investors to question their desire to stick around during peak periods of volatility, patience is undeniably rewarded on Wall Street. Despite never knowing how long a bear market will last or how steep the decline will be, history is crystal clear that all double-digit-percentage downturns in the major indexes, including the Nasdaq Composite, are eventually erased by bull markets.
Image source: Getty Images.
Even with a relatively strong start to 2023, the growth-focused Nasdaq Composite remains more than 20% below its all-time high, set in mid-November 2021. While some might view this as disappointing, long-term investors see it as an opportunity to pounce on high-quality growth stocks trading at a discount.
What follows are four unforgettable growth stocks you'll regret not buying during the Nasdaq bear market dip.
The Trade Desk
The first phenomenal growth stock you'll regret not pouncing on during the Nasdaq bear market decline is adtech company The Trade Desk (TTD 0.78%). Although ad spending could come under temporary pressure if the Federal Reserve's forecast of a "mild recession" later this year comes to fruition, The Trade Desk finds itself at the center of one of the ad industry's fastest-growing trends.
The Trade Desk is a demand-side platform, which means it provides a cloud-based programmatic ad platform that allows businesses to bid on digital ad space. It's no secret that advertising budgets are moving away from traditional print and toward various forms of digital dissemination. But there's a lot more here than simply "everything is going digital."
Where The Trade Desk is making its mark is in the connected TV (CTV) space -- in other words, internet-connected devices that allow users to stream video and/or browse the web. The company estimates its reach at more than 120 million CTV devices. Since The Trade Desk is heavily reliant on data, which allows advertisers to target consumers with their message more accurately, the company notes that CTV cost per 1,000 impressions (commonly known as CPM) is double that of traditional TV ad purchases ($20 CPM vs. $10 CPM).
To add to this point, the CTV space isn't dominated by the usual juggernauts. Whereas Alphabet dominates traditional internet search, CTV is an open playground with transparent bids. This makes it even likelier that businesses will shift their marketing budgets to support higher ad spend in the CTV space.
Another reason The Trade Desk can shine is its international opportunity. Approximately two-thirds of all ad spend in the top 20 worldwide advertising markets occurs outside the United States. Shifting its data and innovation budget to reflect this international opportunity should provide The Trade Desk with a sustainable double-digit growth opportunity.
With nearly a decade of recurring profitability under its belt, The Trade Desk appears perfectly positioned to thrive over the long run.
Fiverr International
A second unforgettable growth stock you'll regret not adding to your portfolio during the Nasdaq bear market plunge is gig economy stock Fiverr International (FVRR -0.75%). While rapidly rising interest rates and potential economic weakness could adversely impact the labor market, Fiverr's online-services marketplace is rife with competitive advantages.
One of these key competitive edges comes from a macroeconomic shift in the workforce because of the COVID-19 pandemic. Although the worst of the pandemic looks to be over, more people are choosing to work remotely than ever before. This fits in perfectly with Fiverr's operating model, which is to connect freelancers and buyers via an online marketplace.
To be fair, there are other online-services marketplaces that could benefit from this labor market change. However, Fiverr's freelancer marketplace stands out for two reasons.
The most front-and-center difference can be seen in how freelancers market their services on Fiverr. Most competing platforms present freelancer services on an hourly cost basis. By comparison, Fiverr's freelancers provide their scope of work for an entire project as a single cost. Buyers are getting unparalleled cost transparency when they use Fiverr's platform, which is probably why the aggregate number of buyers on the platform, as well as spend per buyer, both keep climbing.
The other stand-out factor for Fiverr is its take rate, which is the percentage of revenue it gets to keep from deals negotiated on its platform. Fiverr closed out the March-ended quarter with a take rate of 30.4%, up 80 basis points from the prior-year period and nearly double its closest competitors. A growing user and buyer base, coupled with a steadily rising take rate, is a recipe for superior operating margin and profits that outpace revenue growth over the long run.
Image source: Pinterest.
The third awe-inspiring growth stock you'll regret not scooping up during the Nasdaq bear market tumble is social media stock Pinterest (PINS 0.44%). Despite suffering the same near-term demand concerns as other ad-driven businesses, Pinterest brings sustained competitive edges and catalysts to the table for its patient shareholders.
Because it's a prominent social media company, a lot of emphasis is placed on Pinterest's monthly active user (MAU) count. During the pandemic, the company's MAU count initially surged when people were coerced to stay home, then fell back to the mean as vaccines became available. But when panned out five years, Pinterest's MAU needle is undeniably pointed higher. The platform is drawing a growing number of active users.
But what's even more important than simply growing its user base is monetizing those users. Last year, during an exceptionally difficult domestic and global ad environment, Pinterest recognized a 10% increase in global average revenue per user (ARPU). What double-digit ARPU growth in 2022 demonstrates is that merchants are willing to pay a premium to get their message(s) in front of Pinterest's 463 million MAUs.
Though 2023 ARPU has, understandably, started off slow (a decline of 1% globally), Pinterest has history on its side. Whereas all 12 recessions after World War II have lasted just two to 18 months, periods of economic expansion are almost always measured in years (note the plural). The ad industry spends a disproportionate amount of time in the proverbial sun, which is good news for Pinterest's ad-pricing power.
Furthermore, Pinterest is well-protected from app developers allowing users to opt out of data-tracking software. While most social media sites rely on data-tracking software to help advertisers target users, Pinterest's entire platform is based on users willingly sharing what things and services interest them. This free data makes it easy for merchants to target users, and it lays the groundwork for Pinterest to potentially become a significant e-commerce player.
CrowdStrike Holdings
A fourth unforgettable growth stock you'll regret not buying on the Nasdaq bear market dip is cybersecurity company CrowdStrike Holdings (CRWD 0.27%). While there are concerns that companies with premium valuations, like CrowdStrike, could struggle if a recession materializes, the themes of this list -- competitive advantages and sustainable catalysts -- hold true.
On a macro basis, cybersecurity has steadily evolved into a basic necessity service over the past two decades. No matter how poorly the U.S. economy or stock market performs, hackers and robots don't take time off from trying to steal sensitive information. Demand for third-party protection continues to grow every year.
What allows CrowdStrike to stand head and shoulders above its peers is the company's cloud-native Falcon platform. Falcon is an artificial intelligence-driven solution that relies on machine learning to grow smarter over time. Overseeing trillions of weekly events and being built in the cloud enables Falcon to proactively spot possible end-user threats more efficiently than on-premises solutions.
As I've previously opined, two operating metrics demonstrate just how strong CrowdStrike's business is. The first is its gross retention. Despite having a pricier software-as-a-service (SaaS) solution than many of its peers, gross retention has increased more than 400 basis points to 98% over the past six years. Clients are absolutely willing to pay more for a superior product, and it shows.
The other figure that's a jaw-dropper is CrowdStrike's add-on sales. Growing its subscriber base from 450 to more than 23,000 is impressive in its own right. But seeing the percentage of these clients purchasing five or more cloud module subscriptions jump to 62% in the most recent quarter truly shows how much clients value CrowdStrike's solutions. Add-on sales have lifted the company's adjusted subscription gross margin to nearly 80%.
Despite trading at close to 45 times forward-year earnings, CrowdStrike's lightning-fast sales growth takes its price-to-earnings-growth (PEG) ratio to about 1.7. In other words, it's a lot cheaper than most growth investors realize.
