Tuesday, 29 October 2024
by BD Banks
The United States is arguably the world’s mecca for innovation as the home to many of the world’s largest and brightest companies. But don’t focus so much on America that you miss out on the many gems scattered throughout the world’s economy.
Three Motley Fool contributors recently scanned the globe for the best international tech stocks, and Shopify (NYSE: SHOP), Monday.com (NASDAQ: MNDY), and Fiverr International (NYSE: FVRR) stood out as compelling stock ideas worth considering right now.
Here is what makes each worthy of your hard-earned capital today.
Will Healy (Shopify): When it comes to online selling, more merchants seem to gravitate to the platform created by this, based in Ottawa, Canada.
Shopify created a no-code, easily customizable sales site that entrepreneurs can set up without hiring an IT professional. And its merchant services segment meets numerous ancillary needs for online sellers, allowing customers to handle most e-commerce selling-related functions within Shopify’s ecosystem.
Such functionality has helped it compete with WordPress plug-in WooCommerce and no-code website builders such as Wix. It also enables merchants to sell without the fees that come with selling on Amazon‘s website.
These advancements helped it earn $3.9 billion in revenue in the first half of 2024, a yearly increase of 22%. Over the same period, its net loss was $111 million, down from a loss of $1.2 billion in the same year-ago period.
Still, it earned $170 million in net income in the second quarter, indicating it has returned to profitability after backing away from a capital-intensive plan to build a fulfillment network. Also, the 60% rise in the stock price over the last year indicates that investors approved of the move to sell the fulfillment business.
Investors also seem to take its valuation in stride. The 83 price-to-earnings ratio (P/E) is not a useful measure considering the recent move to profitability, but investors will probably perceive its price-to-sales ratio (P/S) of 14 as acceptable, given its rapid growth.
The stock does have challenges. The aforementioned 22% revenue growth is substantially slower than before and during the pandemic. Also, Shopify pushed through a price increase of up to 34% in February, and it is too early to tell if it will experience significant turnover with that decision.
Nonetheless, Grand View Research believes the global e-commerce industry will grow at a compound annual rate of 19% through 2030. Thus, as its industry continues to expand, the stock is likely to continue rising over time.
Jake Lerch (Monday.com): My favorite international tech stock is Israeli-based Monday.com, a provider of cloud-based workflow management software.
The company’s platform is designed to fill a much-needed niche: the area between off-the-shelf applications (like Microsoft’s Office suite) and custom-made enterprise solutions that are developed and serviced by an in-house technology department — as is often the case at very large organizations.
By targeting businesses that need workflow and collaboration software but are not large enough to invest in their own proprietary software, Monday is tapping into a sometimes overlooked market.
Crucially, the company’s software allows for customization — giving clients the ability to set access levels, create and delete work groups, and share vital information among teams.
From a financial perspective, one thing is clear: Monday’s software is a hit. As of its most recent quarter (the period ending June 30), the company reported $236 million in revenue, up 34% from a year earlier. In addition, the number of large customers (defined as those with over $50,000 in annual recurring revenue), increased 43% year over year.
These two figures are key metrics for a young company like Monday.com. At this stage in the company’s life cycle, attracting new customers and growing its overall revenue is crucial — profitability is a secondary consideration.
Yet, even with profitability, there are positive signs for the company. Its overall gross profit margin stands at more than 90%. That’s the highest ever for the company and a sign that it could grow to become highly profitable.
To sum it up, Monday.com has developed popular workflow software that services a typically underserved niche: small to midsize businesses. It is growing its customer and revenue base quickly, and has a high gross margin, indicating it could produce substantial profits down the road.
Growth-oriented investors looking for an international tech stock should take notice.
Justin Pope (Fiverr International): Israel is home to some remarkable companies, including Fiverr International, an online freelance marketplace based in Tel Aviv. Wall Street has somewhat ignored Fiverr since COVID subsided. The company enjoyed a growth spurt during the pandemic when many people were locked out of their everyday jobs and sought additional opportunities online. However, this proved temporary, and growth has slowed significantly over the past few years.
Importantly, revenue hasn’t contracted. In fact, that pandemic growth helped Fiverr scale larger and turn profitable.
FVRR Revenue (TTM) data by YCharts
Ideally, Fiverr will eventually accelerate its revenue growth again. The company has continually pushed upstream, migrating from simple tasks and small-business clients to more-complex jobs for enterprise clients, helping it increase spend-per-buyer. Beyond that, there are still several ways Fiverr can grow, including:
It seems the market has gotten hung up on Fiverr’s revenue growth these past few years, causing Wall Street to overlook its stellar earnings growth.
Analysts estimate the company will earn $2.36 this year and $2.64 in 2025. That would be a 21% increase over 2023’s earnings and a 12% jump from 2024 to 2025. Yet, the stock trades at just 9.6 times Fiverr’s estimated 2024 earnings! Say what you want about Fiverr’s revenue growth; a company growing earnings at a double-digit pace is a bargain at such a low P/E.
At this point, Fiverr has entered deep value territory, but it’s hard to see this lasting forever. The company estimates its addressable market opportunity is worth $247 billion in the U.S. alone, so it needs to continue building and expanding outward. I wouldn’t be surprised to see the stock soar the moment revenue growth starts to pick up again.
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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. Jake Lerch has positions in Amazon and Monday.com. Justin Pope has positions in Fiverr International and Monday.com. Will Healy has positions in Shopify. The Motley Fool has positions in and recommends Amazon, Fiverr International, Monday.com, Shopify, and Wix.com. The Motley Fool has a disclosure policy.