A lot of growth shares have had a rough few months, with prices tumbling in some cases. That has thrown up some buying opportunities for my portfolio. Here are a couple I would pick for my portfolio.
Shares in streaming giant Netflix (NASDAQ: NFLX) have lost more than half their value over the past year. One of the key reasons is that investors are nervous about previously-fast-growing subscriber numbers starting to fall.
I think the worries are overdone. Netflix has an excellent business model, in my view. It can spread the high costs of producing quality content across millions of customers. As the costs are basically fixed but subscriber numbers are variable, the company can tweak pricing to minimise customer turnover. On top of that, the costs are a one-off. Like other broadcasters, Netflix might still be earning money from content it makes this year, two or three decades from now.
The high costs of making new, compelling content are a risk to future profitability. If Netflix does not keep doing this on a regular basis, it could lose subscribers. But I think its strong market position and potentially lucrative business model make it an attractive share for my portfolio.
Another name among beaten-down growth shares I have been eyeing for my portfolio is online marketplace eBay (NASDAQ: EBAY). The shares have fallen 25% over the past year.
eBay has not consistently grown in recent years. Yet I continue to group it alongside other growth shares however, and last year revenues rose 17%. With its scalable platform and large installed customer base, I expect the business to keep expanding for a long time.
It also has strong pricing power. For many of the items sold on eBay, there simply is no competitor with the same number of possible buyers. So even if eBay pushes up prices, sellers have limited options to go elsewhere if they still want to reach the same size of audience.
Over time, although I expect revenue growth to be modest, I do reckon the company can keep growing. I also think its pricing power could help the business boost profit margins in future. For those reasons I would be happy to buy eBay for my portfolio.
Will these shares recover?
Both Netflix and eBay have fallen a lot in the past year. This suggests investor sentiment has turned negative. Could that continue, pushing the share prices even further down?
I think it could. But as a believer in long-term investing, what attracts me to these shares is not where their share price may go in coming months, but rather the potential level five or 10 years from now. I think both have attractive business models that give them a strong competitive advantage and pricing power. That can be the basis of growth in both revenues and profits.
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C Ruane has positions in Netflix. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.