These companies operate in three distinct industries, but all possess small market-caps and large total addressable markets. Due to the size of these companies, there is the potential for higher growth. However, these stocks are likely to be more volatile than large-cap companies and investors must have a relatively high appetite for risk.
Fiverr: The Bull and Bear Case
Fiverr (NYSE: FVRR) is an online marketplace for freelance services that was founded in 2010 and went public in June 2019, with a mission to “change how the world works together”. The stock has rocketed up over 500% year-to-date (YTD).
Fiverr experienced record growth in Q3 2020, with revenue growing by 88% year-over-year (YoY) to $52.3 million, and an impressive gross margin of 83.4%. The number of active buyers on the platform grew by 37% YoY to over 3.1 million, and average spend increased by 20% to $195. The number of high-value buyers (those with an annual spend per buyer of over 500$) continues to grow, making up over 57% of revenues. COVID-19 has accelerated the trend to long-term remote work, and Fiverr is a clear beneficiary.
Fiverr is investing aggressively in marketing and is also expanding its operation overseas. It launched its sixth non-English website in Portuguese which enables expansion into Brazil and Portugal. Fiverr looks set to continue entering new markets in 2021.
One risk to Fiverr’s business that investors need to be aware of is a regulatory one. The business is built on the “gig” (a word which it has trademarked) economy and companies like Uber have faced legal battles. California, for example, is attempting to force companies to treat gig workers as employees, and this could pose a threat. The company is also operating at a loss although this loss has narrowed.
iRobot: The Bull and Bear Case
iRobot (NASDAQ: IRBT) are the makers of the Roomba vacuum and several other consumer robots.
iRobot’s stock was at an all-time high in 2019 before the trade war with China and tariffs being imposed on products causing the stock to plummet. Management was proactive in attempting to move manufacturing outside of China and all products entering North America will be manufactured outside of China by the end of 2021. CEO Colin Angle addressed this in the Q3 2020 conference call stating that what started “as a headwind, ends the year reversed as a tailwind moving forward”.
The company reported excellent results in Q3 of 2020 with revenue increasing by 43% YoY to $413 million due to strength in retail orders along with strong direct-to-consumer growth. iRobot has no debt and is also profitable, reporting an operating profit of $93 million in the latest quarter.
iRobot’s strategy is focused on differentiating itself from competitors by creating smart homes. It is investing in its app with new features and improved functionality and has also partnered with Google.
The majority of iRobot’s revenue comes from its premium products representing over 60% of Q3 revenue. Although this appears to be a good thing for the company, investors may question the sustainability of these high-end products as a revenue source. The consumer robot market is also extremely competitive, and pricing could put pressure on iRobot.
Schrodinger: The Bull and Bear Case
Schrodinger (NASDAQ: SDGR) made its debut on the public markets in February 2020, and one of its early backers is Bill Gates. The company has two segments and has a mission to “improve human health..”.
The company’s software platform uses physics and chemistry to help speed up the drug discovery program. It does this by using AI to test compounds where historically it would have to be done physically, which increases efficiency, and in the last six months, tested 237 billion compounds. The company also has an internal drug discovery program.
In Q2 of 2020 revenue came in at $23.1 million representing a growth of 21% compared to the year prior and with an 82% gross margin. The majority of this was from software revenue, with only $2.2 million coming from drug discovery. Gross profit was $13.6 million but reported a net loss of $3.4 million.
Schrodinger has many collaborative programs and partnerships with the top 20 pharmaceutical companies using the platform. Schrodinger has also kept equity positions in companies that it has spun out which historically has proved to be successful.
Schrodinger is a relatively stable company without many significant risks due to its software which provides a steady revenue stream. However, the lack of profitability is worth noting.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.