2 Magnificent Growth Stocks Down 88% and 90% to Buy Before the Next Bull Market | The Motley Fool

The past year has been exceptionally difficult for investors. The benchmark S&P 500 soared 27% in 2021, but the index has backpedaled into a bear market in 2022, and it’s on track to notch its worst performance since the Great Recession. But the worst part is the lingering uncertainty: When will the stock market rebound?

Unfortunately, no one knows the answer to that question, but smart investors do know one thing: A bear market is an opportunity to buy good stocks at good prices. For instance, Fiverr International (FVRR -3.11%) and Zoom Video Communications (ZM -0.48%) have seen their share prices plunge 90% and 88%, respectively, but both businesses could thrive when economic conditions improve and the next bull market rolls around.

Here’s what investors should know.

1. Fiverr International: Shaping the future of work

Fiverr is a cornerstone of the gig economy. Its marketplace connects buyers (businesses) with sellers (freelancers) of digital services, and its product catalog lists over 550 categories that span nine industry verticals, covering everything from programming and tech to business and lifestyle. 

Fiverr also provides adjacent services that deepen its ties with buyers and sellers. For instance, freelancers can access task management software, learning content, and advertising tools, while businesses can access freelancer management software and collaboration tools. Those adjacent services make the marketplace stickier, but they also help Fiverr monetize its business more effectively.

In fact, its industry-leading take rate (revenue as a percentage of total spend) climbed 160 basis points to 30% in the third quarter. That figure is particularly impressive when compared to the 15.4% take rate that rival Upwork reported in the same quarter. That said, Fiverr has seen growth decelerate amid the challenging economic backdrop. Third-quarter revenue increased just 11% to $82.5 million, and non-GAAP (adjusted) net income rose 11% to $0.21 per diluted share.

Looking ahead, shareholders should brace for a further deceleration in growth. With cost pressures bearing down on many businesses, Fiverr may struggle to onboard new buyers and drive spend among existing buyers in the near term. But those are temporary issues, and investors have good reason to believe Fiverr can reaccelerate growth as economic conditions improve.

Fiverr has barely scratched the surface of its $247 billion addressable market in the U.S., and the gig economy is only getting bigger. According to Statista, more than half of U.S. workers will work as freelancers in some capacity by 2027. And with shares of Fiverr trading at 3.4 times sales, a bargain compared to the three-year average of 18.7 times sales, now is a good time to buy a small position in this growth stock.

2. Zoom: Simplifying enterprise communications

Zoom is best known for its videoconferencing software, Zoom Meetings, but its offering has expanded into a full suite of cloud communications software. Most recently, the company added a customer service solution (Zoom Contact Center) to its platform, along with two artificial intelligence software products that drive productivity for sales and customer service teams (Zoom IQ for Sales and Zoom Virtual Agent).

Zoom became a household name during the pandemic, as remote work and social distancing drove the adoption of Zoom Meetings. The company reported incredible financial results during that period — in fact, no software company has ever achieved a $2 billion annual revenue run rate more quickly than Zoom — but things look much different today. Revenue rose just 5% to $1.1 billion in the most recent quarter, and non-GAAP net income fell 4% to $1.07 per diluted share.

Yet, Zoom remains well positioned to reaccelerate growth when the economy stabilizes and business spend rebounds, and the investment thesis is actually stronger today than it was a few years ago. Zoom’s cloud communications platform reduces cost and complexity for customers by allowing them to consolidate spend through a single vendor. In other words, Zoom offers a cohesive suite of software that can replace point solutions and eliminate the need for on-premise hardware.

Better yet, as the market leader in videoconferencing software, Zoom is particularly well positioned to drive the adoption of adjacent solutions like Zoom Phone, Zoom Rooms, and Zoom Contact Center. And the company is capitalizing on that opportunity. Zoom Phone surpassed 4 million seats in August 2022, up from 2 million in August 2021. Management also noted strength in Zoom Rooms in the most recent quarter and early traction with Zoom Contact Center and Zoom IQ for Sales.

That said, none of those adjacent products yet account for 10% of total revenue, meaning Zoom has hardly scratched the surface of its upsell potential, let alone its total addressable market of $125 billion by 2026. But investors can see early momentum in remaining performance obligation (RPO), which serves as a leading indicator of revenue. RPO soared 32% in the most recent quarter. That portends better days ahead for Zoom.

Shares currently trade at 4.9 times sales — the cheapest valuation in the company’s history. That creates a very attractive buying opportunity.