The weakening economy dealt heavy blows to many companies. Undoubtedly, some companies have seen their share prices fall for good reasons. But the companies with durable competitive advantages will eventually receive their due reward.
Here are two discounted growth stocks that are primed for a rebound.
NYSE: PINS
Key Data Points
1. Pinterest
Pinterest (PINS +0.53%) is one of the largest and most unique social media platforms. With 445 million monthly active users who visit the app to browse and find inspiration, Pinterest has tremendous opportunities to monetize its users and drive long-term growth. But after a sharp acceleration in growth during the pandemic, it's been challenging to keep revenue and monthly active users growing fast enough to justify the stock's expensive valuation entering 2022.
The stock fell about 35% in 2022, but with the shares rallying to end the year, investors seem to be expecting a recovery in the business next year. In June, the company hired former PayPal executive Bill Ready as CEO. Ready has extensive experience in helping PayPal grow its customer accounts and user engagement in digital payments.
With a new CEO at the helm, Pinterest is poised for a comeback. In the third quarter, monthly active users were flat year over year -- a big improvement over the decline in users through the first half of the year. Revenue growth is also showing signs of stabilizing, up 8% year over year, but the top line could accelerate back to double-digit growth in 2023.
Pinterest has been investing in machine learning and its recommendation systems, which could make the app a more useful shopping tool and attract more advertiser investment in the platform. In June, Pinterest acquired The Yes, a personalized fashion platform that uses artificial intelligence to recommend items to users based on their style and size preferences.
Certain operating metrics show that the stock won't stay down forever. For example, average revenue per user was up 11% year over year in the last quarter, with the fastest growth coming from overseas markets. However, the investments in personalization mean Pinterest has not tapped its full potential.
Analysts currently expect Pinterest to report 14.7% growth in revenue next year, which would represent an acceleration over the current high single-digit rate of growth. With a lot of bad news already priced in, it's only a matter of time before Pinterest reports better financials and the stock climbs higher.
NYSE: LYV
Key Data Points
2. Live Nation Entertainment
Through Ticketmaster and its exclusive booking rights across 320 live music venues, Live Nation Entertainment (LYV 3.74%) connects with more than 300 million concert-goers globally every year.
Through the first nine months of 2022, Live Nation generated $12.4 billion in revenue. Over 80% came from sales at venues, including concessions, parking, rental income, and other fees. However, most of its $1.3 billion in operating profit was generated from ticketing, advertising, and sponsorships.
Live Nation got hit hard with live event cancellations during the pandemic, but the company is now benefiting from tremendous pent-up demand. In fact, revenue and free cash flow hit record levels over the last year and should continue growing in 2023.
LYV Free Cash Flow data by YCharts
One thing driving the company's momentum is the secular trend of spending on experiences as opposed to physical goods. It's estimated that three-quarters of Americans now value spending money on experiences more than buying things. This plays to Live Nation's advantage, especially given the company's exclusive booking rights and equity interests in iconic venues, such as The Fillmore in San Francisco.
In 2022, Live Nation experienced its biggest summer concert season. Management mentioned in the third-quarter earnings report that it wasn't seeing any slowdown in demand, despite the macroeconomic headwinds affecting consumer spending.
Ticket sales for shows in 2023 are already pacing higher than 2022. Even excluding sales of rescheduled shows, ticket sales for next year's events are up by double digits year over year.
Most importantly, Live Nation is profitable, which seems to be going unnoticed by market participants. Live Nation shares fell over 40% in 2022, but with the stock trading at a bargain valuation of just 11.4 times trailing free cash flow, it will inevitably bounce back with strong demand driving the business forward.
