2 battered growth stocks with exciting long-term potential

Many businesses are struggling under the weight of economic pressures such as inflation. Moreover, things could get even worse over the next year: we may or may not enter a recession within the next 12 months, and further interest rate hikes could hurt corporate results. It’s hard to remain calm in the face of these challenges, but investors need to focus on the long term.

Even if a company faces headwinds today and will continue to do so in the coming quarters, that’s no reason to panic. Let’s take a look at two companies that have lagged in the market lately, but could be the big winners in five years and beyond: Etsy (ETSY 0.85%) and pinterest (PINS 0.85%).

ETSY data by YCharts.

1. Etsy remains a strong long-term opportunity

Etsy is an e-commerce platform focused on handmade and vintage products and items. It hasn’t been a good year for e-commerce as the pandemic tailwind for this space has come to an abrupt halt. Add to this dynamic high inflation for 40 years and Etsy, whose rare goods are not known to be cheap, seems particularly vulnerable.

Still, the tech company managed relatively decent financial results. In the third quarter, the company’s revenue increased 11.7% year-over-year (YOY) to $594.5 million, beating the company’s most optimistic forecast of 575 millions of dollars.

Although Etsy’s gross merchandise volume (GMS) – the total value of transactions made on its platform – fell 3.3% year-on-year to $3 billion, it is slightly above its target. median of $2.9 billion. Also, excluding exchange rate fluctuations, GMS increased by 0.7% compared to the same period of the previous year.

The bad news is that Etsy reported a net loss of $963.1 million. However, it was entirely due to $1 billion in impairment charges related to acquisitions, evidence that the company overpaid for these transactions. Additionally, the company’s active buyers and sellers were down slightly year-over-year.

The drop in active shoppers may be due to the struggling economy and shoppers redirecting more money to goods considered “essential”, a category that barely includes vintage items. This issue may continue to plague Etsy in fiscal 2023, but it’s not a death sentence for the company.

Active Etsy buyers have exploded during the pandemic, and it’s no surprise to see that number dwindle a bit now given the state of the economy. Things should stabilize in the long term, especially since the e-commerce industry is promised a bright future. Some say it will be worth $9.09 trillion by 2027, growing at a compound annual growth rate (CAGR) of 14.7% by then.

Etsy sees a massive $2 trillion opportunity, and it’s barely begun to scratch the surface of it. And the company’s platform has built a reputation for being a leader in its niche of vintage and handmade products; it gains value as more people use it, as it attracts even more like-minded users to the platform.

It’s one more reason why Etsy’s prospects outweigh the challenges it currently faces.

2. Pinterest stood out from other social media giants

As a social media specialist, Pinterest stands out from its competition. The company’s platform does not focus on contacting friends and family members or even expressing personal opinions on various topics. Instead, Pinterest users discover images that help fuel their creative endeavours, from home decor and fashion to cooking and art.

Pinterest derives revenue from advertisements and lately companies have been cutting their ad spend which is hurting social media platforms like Pinterest. Additionally, the company’s user growth has been virtually non-existent since the second quarter of 2021. But Pinterest continues to grow revenue, unlike some of its peers in this space.

The company’s revenue increased 8% year-on-year in the third quarter to $684.6 million. This is despite Pinterest’s monthly active users remaining flat at 445 million from the prior year period. The company owes its increase in revenue to growth in average revenue per user (ARPU), which came in at $1.56 for the year, up 11% from the quarter of the year former.

Pinterest will continue to focus on growing its ARPU. Notably, the company seeks to increase engagement by improving its search algorithm and enabling users to find and interact with content they deem most relevant to their needs.

The company’s monetization efforts outside the United States are still relatively new compared to its domestic initiatives. This is good news for the future of Pinterest, as it leaves plenty of room to continue improving its ARPU and revenue. Also, I think Pinterest user growth will pick up once the pandemic-related momentum subsides.

However, a concern for Pinterest is the end result. The company’s third-quarter net loss was $65.2 million, compared with net income of $94 million in the year-ago quarter. Rising spending is to blame here, and inflation probably isn’t helping.

Still, Pinterest offers plenty of opportunity as the online advertising market continues to grow, registering a CAGR of 17.2% through 2027. Remember that Pinterest is growing revenue, even when other giants social media have seen their turnover drop. This says a lot about its ability to profit from this industry in the years to come.

Comments are closed.