The stock market is experiencing significant volatility that has led to some broad sell-offs for some sectors. Russia's invasion of Ukraine, higher oil prices, inflation, rising interest rates, and the geopolitical tension between the U.S. and China are just some of the factors combining to make investors very nervous.
Growth stocks have been hit hard over the past several months, and in some cases, the hits have not made a lot of sense. That makes this a good time to consider adding a few unfairly hit growth stocks to your portfolio. These two stocks, in particular, are well-positioned to outperform over the longer term.
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1. Wix.com: The digital enabler for entrepreneurs
Wix.com's (WIX 2.93%) journey began in 2006 when three founders came together with a simple vision: to make it easier for people to build websites with little to no coding knowledge or skills. The internet was still in its relatively early days then and entrepreneurs were just starting to appreciate the benefits of an online presence. Wix has grown by leaps and bounds since that start in 2006 and now services 222 million users globally.
NASDAQ: WIX
Key Data Points
Many factors helped propel Wix to its present size. The company has evolved to provide a range of tools that help people create and manage websites. Wix also offers other online services, such as analytics and e-commerce tools, that help customers run their businesses.
Once in the Wix ecosystem, customers find it difficult to leave, especially those who have a high reliance on Wix's diverse set of tools, and the cost of switching is very high. That explains the tech company's robust net revenue retention rate (NRR) of 116% in 2021 -- anything above 100% indicates that existing customers are spending more year over year. That customer retention has helped Wix more than double its revenue from $604 million to $1.3 billion over the past three years.
But I believe Wix's best days are still ahead. As a start, the total number of paid subscribers is 6 million at the end of 2021, representing only 3% of the platform's registered user base. Wix should be able to convert some of these free users into premium users over time. The company has a history of adding new tools and services -- mainly through innovation and occasionally through external acquisitions -- to grow customers' spending. This trend will likely continue for the foreseeable future.
Wix's stock price is down about 73% from its 52-week high largely on concerns about volatility in demand for online services related to the COVID-19 pandemic. These concerns have kept management from generating any long-term forecasts with confidence. Investors don't like uncertainty and the stock is being punished. But the pandemic is waning and companies are becoming more confident about how to manage the situation. That should get Wix back on track and begin the stock price recovery, making now a good time to consider getting in on this beaten-down growth stock.
2. Fiverr International: The marketplace for freelancers
Similar to Wix, Fiverr International (FVRR 2.68%) is a company that enables entrepreneurs to carry out online business. But unlike Wix, which provides white-label technology solutions to help its customers set up an online business, Fiverr provides a marketplace for freelancers to sell their services. Clients using Wix still need to acquire their customers, whereas freelancers on Fiverr get traffic from Fiverr's users. To put it simply, Fiverr is an online platform that connects freelance workers (and their offerings) to potential corporate buyers.
Fiverr almost single-handedly invented this service-as-a-product category, and both freelancers and buyers seem to like this approach. Instead of having to go through multiple platforms to find freelancers, buyers can easily search for their desired product (known as a "gig" on Fiverr) and place orders. On the other hand, freelancers get free traffic from Fiverr and use various tools to help grow their business. These tools include payment processing, project management, and more.
By reducing the transaction friction, Fiverr solves the pain points of both sellers and buyers. In return, the platform has flourished over the last few years. For perspective, revenue almost tripled from $107 million in 2019 to $298 million in 2021. Growth in buyers (up from 2.4 million in 2019 to 4.2 million in 2021) and higher spending per buyer (up from $170 to $242 per annum in that period) drove the top-line growth.
While many digital companies expect a significant slowdown as global economies reopen, Fiverr continues to guide robust growth for 2022 -- forecasting revenue to grow at 25% to 27% year over year. Longer-term, the tech company stands to benefit from the huge total addressable market (estimated at about $115 billion in the U.S. alone). With a gross merchandise value of $1 billion in 2021, it has not even covered 1% of this opportunity.
Like Wix, Fiverr is currently out of favor at least partly because of disappointing guidance. However, the company's growth story remains intact and investors with long-term horizons may want to act now.
