2 high-risk, high-yield growth stocks to consider buying now
FOld people who are used to investing in growth stocks are no strangers to the volatile stock price swings that often accompany these companies. Pinterest (NYSE: PINS) and Skillz (NYSE: SKLZ) are two examples of high-risk, high-yield growth stocks that are currently experiencing significant price movements.
The share price of online multiplayer video game competition platform Skillz fell 27% last month as investors worried about the company’s aggressive spending to acquire customers. Likewise, shares of image sharing and social media services Pinterest are hammered after the company reported a drop in monthly active users.
The collapse in the prices of these two stocks could be an opportunity for investors looking for growth stocks and willing to bear the risks that accompany them.
Image source: Getty Images.
Pinterest was growing its income and monthly active users at a rapid rate. That is, until its most recent quarter when the company reported a drop of 24 million MAU. Still, Pinterest claims a total of 454 million MAU. It’s important to note that Pinterest’s ability to generate income largely depends on the number of users it has. Marketers pay to influence people, so the more people on Pinterest, the more money they can make from advertisers.
Marketers love that Pinterest provides an inspiring environment for their brands to associate. Increasingly, advertisers are attaching importance to distance themselves from platforms with toxic content. And options like Alphabetis YouTube and Facebook have so many creators creating so much content, it’s almost impossible for businesses to monitor everything.
The risks are that the fall in the MAU is the start of a continuing downward trend. Management pointed out that the decline in the MAU was a result of economic reopenings that caused people to engage with Pinterest less often. The pace of COVID-19 vaccinations is increasing in many places, and this could eventually lead to a complete reopening of economies. Does this mean that Pinterest will continue to lose MAU?
The additional risk has driven the share price down 27.6% over the past month, creating an opportunity for growth investors willing to accept high risk in the hope of generating high returns.
Skillz is a unique gaming company. It offers consumers the option to bet on games that they play against each other on the company’s platform. Intrinsically it’s okay make games more interesting play and get people’s attention. So far, this is playing out in the company’s revenue growth.
Indeed, people who play games on Skillz spend more time on its site than on YouTube or Facebook. Realizing that they have a product that consumers love, management is spending aggressively to attract new users. Because the product is new and relatively unknown, it will bring a good return on that investment if the company can get the word out.
To underline this opportunity, management showed investors that its long-term value per customer is 3.8 times greater than its customer acquisition cost. It is therefore not surprising that the company has grown customer acquisition expenses to $ 40.5 million compared to $ 16.3 million the previous year.
This is where the risk of Skillz action lies. The company is not yet profitable and is investing aggressively to develop its business. Three does not guarantee that it will one day reach a scale where it can generate sustainable profits. Additionally, reopening economies could hurt Skillz as people spend less time at home on their electronics and more time outdoors.
However, the opportunity for Skillz, in the long run, outweighs the risks the business faces. So, investors obtain a good risk / return ratio with its action.
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Suzanne Frey, executive at Alphabet, is a member of the board of directors of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of its CEO, Mark Zuckerberg, is a member of the board of directors of The Motley Fool. Parkev Tatevosian owns shares of Alphabet (C shares) and Pinterest. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Facebook, Pinterest and Skillz Inc. The Motley Fool has a disclosure policy.
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