After hitting new all-time highs late in 2021, the S&P 500 and Nasdaq Composite have corrected by 10.6% and 17.8%, respectively, from their peaks. Much of the cause of these drops relates to growing investor fear that we could be heading for a full market crash.
Nobody likes seeing their portfolio falling into the red just because of a drop in market sentiment. But market crashes are not all bad news. For one thing, market crashes allow long-term investors to benefit by investing in great companies at more reasonable price points.
Here are two great companies on my watchlist that I will buy stock in if the market crashes.
Let us start with Roblox (NYSE:RBLX), one of today’s leading gaming platforms. For starters, Roblox provides a platform for developers to create games for ordinary users like us. Most of these games are free to play, but developers charge for virtual items or in-game enhancements.
While most users come to Roblox for the games, many join the platform to spend time with their friends. And as new users come to Roblox, they usually invite their friends to join them. In other words, Roblox is increasingly becoming a social media platform — think of Meta Platforms‘ (NASDAQ:FB) Facebook and Instagram, and Snap‘s Snapchat.
Daily active users (DAU) rose threefold from 15.8 million in the first quarter of 2019 to 47.3 million in the third quarter of 2021. The ever-growing user base propelled Roblox’s revenue almost fivefold during that period to $509 million in Q3 2021.
While impressive, these numbers may just be the beginning of an even more substantial rise in the coming years. To this end, Roblox is doing many things to keep up with its growth. It is actively increasing its older user base and expanding its international presence, partnering with Tencent to enter the Chinese market. It is also expanding from its traditional use cases in gaming and social into new areas. A brand can build a direct relationship with its customers on Roblox, while a teacher can use Roblox to teach any subject.
These efforts will likely contribute to the growth and diversification of Roblox’s user community over time. Besides, it will help the company diversify its revenue base, from taking a cut from each transaction to other means of income such as subscription, advertising, commerce, and more. In short, Roblox is well-positioned to grow in the foreseeable future, and it will likely be rewarding (both financially and psychologically) to buy the stock on the cheap in a market crash.
2. Meta Platforms
Meta Platforms manages the largest social media platform globally, with over 3.6 billion active users per month spread across its Facebook, Facebook Messenger, Instagram, and WhatsApp apps.
Thanks to its range of services spanning news, e-commerce, and others, Meta Platforms is increasingly becoming an integral part of billions of daily lives. Users can connect with family and friends through Whatsapp or Facebook Messenger, scroll through the Facebook app for the latest news and information, occupy time browsing image and video content created for Instagram, and browse Facebook’s marketplace for products to buy. As we spend time on these services, advertisers can place targeted ads on Meta’s apps to reach us.
This helps explain Meta’s ever-rising revenue — up more than threefold between 2016 and 2020 to $86 billion. Even during 2020, the peak year of the pandemic, Meta grew revenue by 22% year over year.
While Meta’s past performance has been solid, its future is equally promising. On its existing advertising business, the company can continue to improve its monetization of Instagram and WhatsApp. Beyond that, the tech giant can count on some of its newer services, such as e-commerce and virtual reality, to grow into bigger revenue contributors. The latter, in particular, could be game-changing as Meta rides the metaverse tailwind.
I think Meta Platforms still has plenty of growth runway ahead, and buying the stock during a market crash could be lucrative over the long term.
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.