The world's most prominent technology companies, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, dominated the stock market over the past 18 months. This group, dubbed the "Magnificent Seven," collectively generated remarkable investment returns on their way to trillion-dollar market caps.
These companies are leading some of the hottest growth trends, including artificial intelligence (AI). However, most have stretched to lofty valuations that diminish their near-term investment upside.
Instead, three Fool.com contributors hand-picked Fiverr International(NYSE: FVRR), The Trade Desk(NASDAQ: TTD), and Spotify Technology (NYSE: SPOT) as table-pounding tech buys with lucrative growth prospects at great prices.
Here is what you need to know.
Fiverr's a cash-flow-gushing bargain worth scooping up
Justin Pope (Fiverr International): Wall Street forgot the freelancing marketplace Fiverr International since the lockdown period during the COVID-19 pandemic ended. The stock soared when lockdowns pulled forward blistering growth, then tanked when the economy normalized. Shares lost over 90% from their pandemic peak. The selling has gone way too far.
Fiverr's growth slowed, but revenue never declined. In other words, it didn't give up anything it gained during the height of the pandemic:
FVRR Revenue (Quarterly YoY Growth) data by YCharts
Plus, the company is aggressively shifting from gigs like copywriting or voiceover work to more complex skills it can sell to enterprise customers. Fiverr's customer base is evolving from quantity to quality; active buyers declined 8% year over year in the second quarter, but the spending per buyer increased 10%, which drove total revenue growth. Management expects this trend to continue. Importantly, Fiverr has emphasized that AI technology is a net positive for growth; AI is replacing some simple tasks but creating more opportunities in the complex skills segments Fiverr clients covet.
Most importantly, management believes the business will generate substantial free cash flow over the coming years. Fiverr projected that cash flow will grow by 14% annually from 2024 to 2027, creating approximately $300 million in cumulative cash. Analysts believe Fiverr will earn $2.31 per share in 2024, which values the stock at just over 11 times earnings. Assuming earnings can grow as quickly as cash flow, that's a bargain for a company increasing profits at a double-digit rate.
This tech stock is approaching record highs amid a below-average valuation
Will Healy(The Trade Desk): Investors may not see The Trade Desk as an AI stock at first glance. It bills itself as an "omnichannel platform built for the open internet," serving as a demand-side platform that enables companies and agencies to manage digital ad campaigns.
The Trade Desk's is popular because it allows users to run ads at the times and places where the company can gain higher returns from ads. Last year, it brought AI more directly into the process by introducing Kokai.
Kokai integrates deep learning algorithms into every aspect of digital media buying. With this technology, users can make better sense of the 13 million ad impressions every second, picking up signals to help media buyers find the best times and places to buy ad impressions. Considering this business's $1 trillion addressable market, its technology could mean considerable opportunities and savings for its clients.
Not surprisingly, such products also improve The Trade Desk's finances. In the first three months of 2024, revenue of $491 million rose 28% yearly. This was a significant improvement over the 23% revenue increase in 2023.
Thanks to expenses growing at a slower rate, The Trade Desk earned an operating profit, leading to a net income of $32 million, far above the $9 million in the year-ago quarter.
Amid these improvements, The Trade Desk is up by more than 240% over the last five years. Although the stock took a massive hit in the 2022 bear market, it has stood out by regaining most of that lost value.
Consequently, its price-to-sales (P/S) ratio is now at 22. While that may seem high, it is below the five-year average of 26, increasing the likelihood that more AI-driven gains could still take the stock significantly higher.
Spotify just reported another excellent quarter
Jake Lerch (Spotify Technology):My choice is Spotify Technology. The company, which operates the world's most popular music streaming service, continues to post fantastic financial results.
In its most recent quarter (the three months ending on June 30, 2024), Spotify generated 3.8 billion euros ($4.1 billion) in revenue, up 20% from a year earlier. Similarly, gross profit reached a new all-time high of 1.1 billion euros ($1.2 billion), which represents a 45% increase from one year ago. Finally, free cash flow for the quarter was 490 million euros ($534 million). That figure has skyrocketed compared to last year, when Spotify generated only 9 million euros ($10 million).
What's driving the excellent numbers is continued user growth. Total monthly active users (MAUs) jumped 14% to 626 million. Roughly 39% of those total users are premium subscribers, who pay anywhere from $12 to $20 in the United States. These premium subscribers drive about 88% of the company's total revenue. Crucially, the company beat expectations for premium subscriber growth this quarter, recording a 12% increase in this key category.
Yet, despite these solid numbers, it's important to remember that Spotify isn't a stock for every investor or portfolio. The company is still early in its business life cycle, focusing on growth. Its stock pays no dividend and likely will not do so anytime soon. Furthermore, if revenue stalls, profits decrease, or user growth dries up, Spotify's stock could tumble sharply. In other words, Spotify is still a growth stock -- with all the risks that come with one.
However, Spotify keeps delivering the goods for its shareholders, which explains why the stock is up 83% year to date. For growth-oriented investors willing to hold through volatility, Spotify is a name to consider.
Should you invest $1,000 in Fiverr International right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, Nvidia, Spotify Technology, and Tesla. Justin Pope has positions in Fiverr International. Will Healy has positions in The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Fiverr International, Meta Platforms, Microsoft, Nvidia, Spotify Technology, Tesla, and The Trade Desk. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
