Growth stocks haven’t been treated kindly by investors in recent months, and as a new year dawns, you might be considering where the best opportunities are to park your cash. While not all growth stocks will recover from their pandemic highs, businesses with a clear path forward to growth can prevail beyond the near-term market dynamics afflicting companies across virtually every sector.
If you are adding to your portfolio right now, Pinterest (PINS 1.93%) and Amazon (AMZN -0.21%) are two growth stocks to consider putting on your buy list before 2023 arrives.
As a leader in the world of social commerce — an industry worth nearly $40 billion at present — Pinterest is well-poised to achieve ongoing growth, even if the trajectory of ad spending decreases temporarily in a difficult economic environment. The idea of social commerce, which is buying and selling products and services using social media, is hardly new. Companies like Meta Platforms and its subsidiary Instagram have built behemoth businesses around this concept.
Where Pinterest has differentiated itself is in the user experience of its innovative platform, which is known for its sharing of images. The platform caters to consumers with interests spanning just about any topic or industry imaginable, which presents a golden opportunity for businesses that want to advertise their products or services.
While its growth has slowed from pandemic levels — which is reasonable given the elevated online spending volume of the stay-at-home era — and companies are scaling back ad spending in the current macroeconomic landscape, these factors aren’t due to deficiencies in Pinterest’s core business model.
In the most recent quarter, Pinterest’s revenue jumped 8% from the year-ago period, while the company reported adjusted earnings of $77 million. Notably, average revenue per user rose 11% year over year, while total average users reached 445 million worldwide.
When consumers log onto Pinterest for their latest bout of inspiration — for home decor, a holiday recipe, or any other reason — their search will lead them directly to a variety of matching products and services in the forms of images, videos, and clickable ads.
This sticky model not only expands a merchant’s potential to target and retain its consumer audience, but continues to draw users back to Pinterest’s platform. All of this can translate to more ad revenue and sustainable growth for Pinterest over the long run, which bodes well for long-term investors in the stock.
Since its business history spans nearly three decades, it’s fair to say that the current volatile economic environment isn’t Amazon’s first rodeo, or even its second. The tech giant is still recording favorable financial results from its core businesses and building upon a solid foundation that can continue enriching its balance sheet — and investors — in the years ahead.
First, there’s the company’s cloud computing business: Amazon Web Services (AWS). AWS provides an increasingly larger slice of the company’s overall growth, and encapsulates a suite of solutions and services used by some of the world’s largest companies, including Apple, Netflix, and Airbnb. Sales from the AWS segment alone totaled $20.5 billion in the third quarter of 2022, a 27% jump compared to the same quarter in 2021.
Looking at Amazon’s total revenue for the three-month period, it reported $127 million on the top line, a 19% year-over-year increase on a currency-neutral basis. The company is also still profitable, and generated net income of roughly $3 billion in the quarter. Bear in mind that in the trailing decade, the company has grown its annual earnings by 12,000%.
Even as the trajectory of consumer spending is fluctuating, Amazon remains one of the leading players in the multitrillion-dollar global e-commerce industry. In fact, Amazon accounts for roughly 38% of all online retail sales conducted in the U.S., while its global market share is about 13%.
Amazon has a strong foothold in key markets that remain mainstays of its business, namely cloud computing and e-commerce, and continues to expand into other massive addressable markets like advertising and healthcare. These are all abundant green flags for the company over the long term.
The company was sitting on roughly $96 billion in cash and investments in the most recent quarter, and is coming from a position of strength to ride out any near-term bumps in the road. Given its long-term runway for growth, patient investors in Amazon stock may find its current discounted price a tempting bargain.
John Mackey, 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. Rachel Warren has positions in Amazon.com and Apple.
The Motley Fool has positions in and recommends Airbnb, Amazon.com, Apple, Meta Platforms, Netflix, and Pinterest. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.