October 20, 2021

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Unlimited Technology

2 Beaten-Down Tech Stocks to Watch

Not every tech stock has been a winner during the pandemic era. While many tech giants, software providers, and e-commerce companies have seen their stocks soar, some tech stocks have failed to cash in on that enthusiasm.

Two tech stocks that investors don’t like very much right now are database software provider Couchbase (NASDAQ:BASE) and marketplace platform Poshmark (NASDAQ:POSH). Here’s why patient investors should keep an eye on these two struggling tech stocks.

A man looking at a chart on a screen.

Image source: Getty Images.

Couchbase

The market really didn’t like Couchbase’s first earnings report as a public company. Growth was sluggish, losses nearly doubled, and guidance left a lot to be desired. Revenue rose just 18%, not exactly impressive in the world of subscription software companies. Shares of Couchbase are down around 30% from their all-time high as of this writing.

Couchbase is a NoSQL database provider, meaning that its software doesn’t constrain users to storing data in well-defined rows and columns, like old-school databases. It’s natural, then, to compare Couchbase with the much larger MongoDB. Both companies are trying to define the next era of the database market with their respective NoSQL platforms.

But while MongoDB is aiming at customers of all sizes, Couchbase is focused solely on large enterprises. There are upsides and downsides to this approach. The good: Large enterprise customers that commit to Couchbase are unlikely to switch providers, and they’ll naturally spend more over time as they expand usage throughout the business. The bad: Winning those large enterprise customers takes a lot of time and a lot of money.

Couchbase is valued at about $1.6 billion, or roughly 13 times the company’s sales guidance for the full year. Couchbase is certainly not a hypergrowth stock, but it’s worth keeping an eye on. If Couchbase can establish itself as the NoSQL database of choice for the enterprise, it has the potential to grow into a highly profitable software business in the long run.

Poshmark

Poshmark’s time as a publicly traded company has been a disaster for investors. The stock has done nothing but tumble, and it’s down a whopping 75% from its all-time high.

Poshmark runs a social media-infused marketplace for secondhand items, taking a cut of every sale. A total of $450 million worth of items were sold through the platform in the second quarter, up 25% year over year, with Poshmark taking $82 million as revenue. Growth is slowing down as the pandemic enters its final stages, so the outlook is cloudy.

The company is betting that consumers, particularly younger consumers, will prefer a more social buying experience compared with the transactional nature of most e-commerce sites. It’s easy to buy clothes on Amazon, but it’s not exactly fun. Poshmark is also a common way for people to cycle out their wardrobes, buying and then later selling items through the platform. Poshmark gets a cut of the sale each time.

Poshmark faces competition from other marketplaces, although the millions of buyers and sellers already using the platform provides a powerful network effect. Buyers are drawn to Poshmark by the selection, and sellers are drawn by the vast pool of buyers. This doesn’t guarantee that Poshmark will remain popular, but it does make it harder for smaller marketplaces to gain traction.

The company is worth just shy of $2 billion, or about 6 times the average analyst estimate for 2021 revenue. The online U.S. resale market for apparel and footwear alone is expected to grow to $26 billion by 2023, so Poshmark has a large opportunity in front of it. With the market beating down the stock, it may be time for long-term investors to take a look.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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