Although there hasn’t yet been a market crash in 2022, the stock market has been volatile, reflecting the broader economy. Savvy investors know that a market crash is not a bad thing, but a natural part of the process. It definitely doesn’t feel good, but unless you need immediate funds, you can stay calm and ride it out. And what’s more, a crash can present opportunities to buy great stocks at low prices, maximizing your gains.
Post-earnings report sell-off
Investors absolutely crushed PayPal stock after it reported fourth-quarter earnings, sending the price down 25% in one day. It’s now down 45% year-to-date.
What was so egregious in PayPal’s earnings report? After all, management said it was a “solid finish to another strong year.” Obviously, the investing world didn’t exactly agree.
Total payment volume (TPV) came in at the low end of management’s full-year guidance in the third-quarter release, growing 33% year-over-year to an astounding $1.25 trillion, tipping the trillion threshold for the first time. Revenue also came in as expected, growing 17% year-over-year to $23.4 billion. This was also in line with analysts’ average expectations. Fourth-quarter earnings per share (EPS) of $1.11 came in a penny below analyst predictions of $1.12.
However, fiscal 2022 guidance was a bit weak. On a year-over-year basis, TPV growth is expected to decelerate to a range of 19% to 22%, and revenue is expected to increase by 15% to 17%. 2021 EPS was slightly down, and that’s expected to decrease further in 2022.
None of this is really surprising. The pandemic generated very high growth for digital payment companies, since more people shifted their spending online. Not only are they going back to stores now, but even if they would keep up online shopping, the growth wouldn’t stay at such elevated levels.
Where does that leave PayPal? In a good position. It’s still growing, and it’s the dominant player in its field. It may be past its high growth stages, and investors can view it more as a value stock. But it’s a really good one that has the power to provide stable, long-term growth.
PayPal shares trade at less than 30 times trailing 12-month earnings, which is a fine valuation for a company posting double-digit sales growth. This is a sale price for a set-it-and-forget it stock.
A reset for growth stocks
Many stocks that support a socially distanced lifestyle soared at the beginning of the pandemic, and are now being reset for regular living. Some of that is justified since they may have grown too fast. Some of it is not, because many of these companies are still posting high growth and have the potential for much more. Investors are still figuring out the right way to value many of these high-growth companies that are posting decelerating growth. As they lose much of their value, they’re looking like real bargains.
Fiverr stock ballooned 730% in 2020, and it could not sustain that in 2021, dropping around 40% of its value. It’s now down another 38% in 2022. That’s pretty crushing for shareholders, but it creates an opportunity for new investors.
Fiverr released fourth-quarter earnings last week that demonstrated continued momentum even though it’s slowing down. Again, that’s not surprising, as the biggest shift may have already occurred when people left offices and began to work from home. The word “decentralized” is popping up in many contexts, and it belongs in this conversation as well. Offices and workplaces are becoming decentralized, and more people are working from home even as offices are reopening.
Fiverr is well-positioned to benefit from this trend, and perhaps uniquely so due to its focus on enterprise accounts. CEO Micha Kaufman pointed out in the earnings call that not only are people leaving their jobs to freelance or start their own businesses, but large companies are having trouble retaining full-time employees, and are relying more on a decentralized and freelance workforce. These trends contribute to Fiverr’s success from two opposing sides.
In the fourth quarter, growth slightly accelerated with sales increasing 43% year-over-year vs. 42% in the third quarter, beating internal guidance. Active buyers increased 23% year-over-year to 4.2 million, and spending per buyer increased 18%. The “take rate” — that’s the fee it takes from projects — reached an industry-leading 29.2%. That’s phenomenal performance. However, net loss more than doubled year-over-year to $19.5 million.
The company also reports adjusted net income, which includes share-based compensation and amortization and depreciation, which it considers an effective measure of its underlying business. Adjusted net income increased year-over-year from $4.8 million to $9.2 million.
Management is forecasting around 25% to 27% year-over-year revenue growth for both the 2022 first quarter and full year. At the current price, shares trade for about 10 times sales, which is still expensive, but reasonable if you believe in this growth stock’s story.
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