As market dynamics evolve, the possibility of a new bull market looms on the horizon, presenting a unique set of opportunities for the discerning investor. The inflation-based downturn of the past two years cannot, and will not, last forever, and there is always another bull market beyond the horizon.
So we convened a trio of financial analysts -- Anders Bylund, examining Fiverr International (FVRR 3.69%); Nicholas Rossolillo, analyzing Airbnb (ABNB 4.20%); and Billy Duberstein, exploring Sea Limited (SE 2.32%) -- each bringing a finely tuned perspective on stocks that are poised to benefit from a market upturn. Their analyses offer a strategic vantage point for investors seeking to optimize their portfolios for the anticipated market shift.
NYSE: FVRR
Key Data Points
The freelancing revolution is still happening, after this brief inflation panic
Anders Bylund (Fiverr International): Many of my favorite stocks have traded a good deal lower over the past two years and are just waiting for the next bull market to let them loose again. With so many excellent investment opportunities on the table, I'm really spoiled for choice.
That being said, I'm especially excited about Fiverr International right now. The freelance services wrangler reported robust third-quarter results this week, beating Wall Street's consensus estimates across the board and following up with solid guidance. The previous quarter's full-year revenue target remains in place at roughly $361 million (7% year-over-year growth), while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were tightened around the upper half of the former target range of $56 million to $60 million.
Fiverr saw a slight dip in the number of active freelance service buyers, but the remaining customers spent an average of 4% more per transaction. It's not a perfect picture, but still pretty impressive given the inflation-driven pressures of the current economy.
The Fiverr Neo AI service already has thousands of customers, just one month after becoming publicly available. New service-matching tools under the banner of Fiverr Business Solutions, Fiverr Enterprise, and Fiverr Certified are also enjoying strong traction in the early days.
I can't wait to see what this disruptive little gig-economy leader can do in a healthier market, where people and businesses alike are keen to invest in creative services again. This week's third-quarter update looked like a potential turning point, and Fiverr did deliver slightly stronger results than expected, but it wasn't a blowout with game-changing effects on the stock price.
Instead, Fiverr's share price fell a few more percentage points after the report and now trades more than 50% below the 52-week high. Pardon me, but Mr. Market is making a pretty clear mistake here.
Luck favors those who are prepared, and I highly recommend stocking up on Fiverr shares while this silly imbalance between low stock prices and tremendous long-term growth prospects sticks around. The next bull market should give us Fiverr investors all the rocket fuel we need.
NYSE: SE
Key Data Points
This consumer behemoth in emerging economies should do well in an improving economy
Billy Duberstein (Sea Limited): If the current inflation slowdown continues and the jobs market remains resilient, the economy should improve. And if the U.S. economy improves, U.S. trading partners' economies will probably improve as well.
Sea Limited is the current leader in three consumption-based consumer businesses in countries that are key trading partners to the United States, including Taiwan, Indonesia, The Philippines, Malaysia, Singapore, Thailand, and Brazil. Those Southeast Asian economies should continue to do well, especially if U.S. businesses divert more manufacturing out of China and to these countries.
Sea has three main businesses, in mobile gaming, e-commerce, and fintech. All of these digital consumer businesses boomed during the pandemic, then busted during the post-pandemic inflation spike. But Sea has been rapidly growing its e-commerce and fintech platforms anyway through the downturn. And the gaming business, which saw a huge decline, has recently showed signs of turning around.
In fact, Sea's quarterly active users for its gaming division bottomed in the fourth quarter of 2022, with incremental gains coming over the first half of 2023. But because these games are "free to play" with customers needing to choose to spend on extra features, bookings and revenue have continued down, albeit at a slowing pace. But as the global economy improves, revenue should eventually follow user growth and turn back higher.
Moreover, Sea's hit game Free Fire was just allowed back into India, where the game was banned in early 2022, just as Sea's gaming numbers began to plummet. Sea has to implement data localization measures, as India is worried about user data getting onto Chinese servers. Sea had traditionally used Tencent (TCEHY 2.54%) cloud servers but is now implementing necessary changes. The relaunch should happen soon and is likely to boost the gaming division's results.
In addition, economic tailwinds are good for e-commerce and fintech businesses, which were already growing 28% and 53%, respectively, for Sea last quarter. And Sea's e-commerce platform Shopee -- likely to be its most valuable of its three businesses -- got another shot in the arm when Indonesia, the largest market in Southeast Asia, recently made it more difficult for social media platforms to enter the e-commerce business. That essentially shut down TikTok Shop, the e-commerce wing of the Chinese social-media giant, which had been threatening to challenge Sea's leading market share in the country.
Sea has shown the ability to develop high-quality consumer services, grow them quickly, and overtake competitors across a number of geographies. If the post-pandemic e-commerce and gaming recession ends and the economy turns back up, the stock looks awfully cheap at just 2 times sales.
NASDAQ: ABNB
Key Data Points
Travel and experience spending is here to stay -- in the States and abroad
Nicholas Rossolillo (Airbnb): High interest rates have many consumers, especially in North America and Europe, passing on big purchases like a home or new car. But travel has been resilient, and we see the results in Airbnb's financials. Revenue increased another 14% year over year in Q3 2023 when excluding currency exchange rate fluctuations. Emphasis on travel and experiences is the real deal.
It isn't just an effect in the States, either. The travel rebound in the wake of the pandemic is taking root internationally, too, and one Airbnb is capitalizing on. The company's North America revenue now sits at just 47% of the total as newer markets for its accommodations marketplace, such as South Korea and Brazil, soar.
And as its efforts away from its home base in the U.S. begin to pay off, Airbnb's bottom line is booming. Adjusted EBITDA -- a useful metric right now, given that an income tax benefit of $2.7 billion added to GAAP net income won't be repeatable next year -- increased 26% year over year to $1.8 billion. Airbnb has been raking in the free cash flow (FCF) too, which was $4.2 billion over the last reported year, and good for a whopping FCF profit margin of 44% over the last 12-month stretch.
Of course, worsening economic conditions -- and especially in the U.S. -- could have an impact on Airbnb. Though I believe the risks of housing market turmoil are having a greatly misunderstood effect on the company, things could still certainly go south.
But if you believe travel and experience spending will remain in an overall bull market for years to come, Airbnb is in a superb position to benefit. The stock trades for just over 18 times trailing-12-month FCF right now, which looks like a pretty good long-term value to me.
