While this year's stock market gains have provided a marked improvement over 2022's losses, not all stocks are flying high. Some have suffered depressed share prices for various reasons, but nonetheless remain excellent companies with the ability to bounce back over the long term.
Three such companies are Fiverr (FVRR 3.74%), PubMatic (PUBM 1.75%), and Walt Disney (DIS -0.04%). Each saw their stocks slide this year for different reasons, and at the time of this writing, their share prices are still near 52-week lows. Yet each company possesses fundamentally sound businesses that continue to deliver despite what their stock price drops may indicate.
Let's dig into these three companies, and unpack some of the key reasons their businesses are poised to succeed over the long run.
Stock 1: Fiverr
Fiverr operates a digital marketplace for businesses to hire freelancers. The company generates revenue by collecting transaction fees from these businesses, which it calls buyers.
Fiverr simplifies the buying process for businesses by translating each freelancer's offerings into a product-like bundle that makes the purchase experience akin to e-commerce shopping. This approach got a boost in August with the debut of artificial intelligence to match buyers with freelancers more effectively.
Data by YCharts.
Fiverr's business model works, as seen by its years of steadily increasing revenue. This revenue growth continues into 2023. The company's sales for the first half of this year reached $177.3 million, up from $171.7 million in 2022.
Given consistently rising revenue, why did Fiverr's share price fall in 2023? Part of the blame surrounds fears of artificial intelligence taking over the work currently done by freelancers. But this fear is overblown.
CEO Micha Kaufman stated: "We haven't seen AI negatively impact our business, on the contrary, the categories we opened to address AI-related services are booming. The number of AI-related gigs has increased over tenfold, and buyer searches for AI have soared over 1,000% compared to six months ago."
The company's strategy for continued revenue growth is sound. Fiverr is pursuing bigger businesses to expand its customer base of 4.2 million buyers. Larger businesses should help drive up the average spend per buyer, which reached $265 in the second quarter from $259 in 2022, and thereby grow revenue.
Stock 2: PubMatic
PubMatic, whose digital advertising platform is used by website owners to generate income from ads, is struggling with revenue growth this year as the broader advertising industry experiences a downturn. Industry forecasts predict 2023 will see the slowest ad spending growth in 14 years.
The company's Q2 revenue barely squeezed past last year's $63 million to reach $63.3 million, and the company estimates its Q3 revenue will come in under $61 million, a drop from the prior year's $64.5 million. But PubMatic's business is resilient enough to weather the industry downturn.
Its Q2 revenue from connected TV (CTV) advertising experienced more than 30% year-over-year growth. Thanks to the consumer shift to streaming video, CTV advertising is booming, and forecasts estimate double-digit growth in U.S. CTV ad spending through at least 2027. This will provide PubMatic with a multi-year revenue tailwind.
PubMatic also generated Q2 free cash flow (FCF) of $10.8 million. FCF is an indicator of the cash available to invest in the business, pay debt obligations, and fund dividends or repurchase shares. PubMatic did exactly that, repurchasing 1.8 million shares through July 31.
Forecasts estimate the advertising industry's current softness will pass in 2024, when spending on digital advertising is expected to see a double-digit increase. When that happens, PubMatic's business is well-positioned to return to revenue growth.
Stock 3: Walt Disney
Another company facing short-term headwinds is Disney. From twin industry strikes among writers and actors to an unprofitable streaming business, the entertainment giant is undergoing a rough 2023 despite celebrating its 100th year in business.
Disney's problems seem daunting, but the company is showing positive signs. In its fiscal Q3, ended July 1, year-over-year revenue grew 4% to $22.3 billion on the strength of its Disney parks, experiences, and products division. This segment includes its non-film businesses, such as theme parks and cruise ships, and its Q3 revenue grew 13% over the prior year to $8.3 billion.
Moreover, this division is highly profitable, generating operating income of $2.4 billion in fiscal Q3, double the profit of its film and TV division. This performance is one reason Disney recently announced plans to spend $60 billion over the next decade to expand this part of its business.
Disney also saw its fiscal third-quarter FCF jump from $187 million in 2022 to $1.6 billion. Thanks to strengthening FCF, Disney is considering a dividend by the end of this year.
As for the company's unprofitable Disney+ streaming service, Disney is on a path to achieve profitability by the end of fiscal 2024. The company has already cut its direct-to-consumer streaming division's Q3 operating loss from $1.1 billion last year to $512 million, a 52% improvement.
As short-term headwinds recede, Disney, PubMatic, and Fiverr's businesses are poised to strengthen. These companies are worthwhile investments, and the current decline in share price creates an opportunity for investors to buy into these solid companies at a discount.
