It hasn’t been a pleasant 2022 for investors, with the stock market turning in its worst performance in 50 years. But bear markets always give way to new bull markets, and the best way to prepare for future returns is to stick with strong brands that you know will be around for years. It’s the power of compounding growth over decades that builds wealth.
Three Motley Fool contributors recently picked Airbnb (NASDAQ: ABNB), Netflix (NASDAQ: NFLX), and Etsy (NASDAQ: ETSY) as three stocks worth holding through thick and thin. Here’s what makes these companies great investments and why investors could be handsomely rewarded for their patience.
Building the future of travel
John Ballard (Airbnb): The online travel service provider has experienced tremendous growth since its founding in 2007. There are over 4 million hosts offering unique places to stay that distinguishes the experience from large hotel chains, and this competitive advantage is driving strong growth as people return to travel.
Airbnb continued to report terrific performance in the first quarter, with nights and experiences booked exceeding 100 million and growing 59% year over year. Given the severe headwinds in the economy, with consumers being challenged by a 40-year high in inflation, Airbnb is clearly showing resilience and its potential to serve more customers over time.
Indeed, Airbnb is just barely tapping its potential right now. Management previously estimated its total addressable market at $3.4 trillion. With gross booking value totaling $17 billion in the last quarter, Airbnb has plenty of room to grow.
Airbnb is benefiting from two major trends. One is longer stays, which is the fastest-growing category on the platform. The other trend is the long-term growth in global travel spending. The U.S. Travel Association expects travel spending to increase from $1.05 trillion in 2022 to $1.26 trillion by 2026. That’s about $250 billion of incremental spending that is up for grabs.
Airbnb has got the brand and the technology to reward shareholders with great returns for decades to come.
Families can get entertainment all month for an affordable price with Netflix
Parkev Tatevosian (Netflix): Netflix is one of my favorite all-weather stocks to consider buying right now. Watching movies and shows is something people do in all economic scenarios. Moreover, a Netflix subscription costs less than $20 per month for the most expensive version. That means, during an economic recession, when folks tighten their budgets, Netflix could prove its value.
Taking your family out to the movies, a restaurant, or a theme park is more expensive than streaming content on Netflix. As inflation pinches household budgets, a subscription to Netflix provides excellent bang for the buck. The strong value proposition can help explain why Netflix has grown revenue from $5.5 billion in 2014 to $29.7 billion in 2021. The company has also achieved solid economies of scale during that time, boosting operating income from $403 million to $6.2 billion.
Meanwhile, investors have sold off Netflix’s stock due to fears of headwinds from the economic reopening and rising competition. Those are powerful adverse forces that shouldn’t be ignored, but investors have overreacted. Indeed, shares are down 69% from their highs. Netflix’s stock is trading at its lowest price-to-earnings ratio in the last five years. Investors looking for a growth stock they can hold in any market will do well by purchasing Netflix stock.
An e-commerce winner in any market
Jennifer Saibil (Etsy): You know the market has changed when investors are cheering an 11% year-over-year sales increase after Etsy posted triple-digit growth just last year. But revenue of $585 million reached the upper end of its guidance for the 2022 second quarter, which was $540 million to $590 million, and also beat the average analyst forecast of $556 million. Earnings per share (EPS) of $0.51 were down from $0.68 last year, but exceeded analysts’ consensus estimate of $0.32. Now that expectations have been drastically lowered, Etsy beat them handily.
There are a numbers of factors that contributed to the strong showing in the second quarter. First and foremost was an increase in fees charged to sellers. Although there was initial pushback, which management anticipated, it died down quickly and played a major role in Etsy’s performance. Active sellers actually grew more than 40% over last year despite the increase in fees, and that’s quite telling about the platform’s brand power and dominance in its field.
At the time of the announcement, management said it was necessary to be able to invest in growing the platform. It was crucial to demonstrating growth in the second quarter. Etsy marketplace gross merchandise volume decreased 6% versus last year despite adding 6 million new customers, but marketplace revenue rose 11%.
And the company has indeed been heavily investing in its platform. In Q2, it improved its search and ad functions, as well as its international shipping capabilities. Etsy actively marketed its app, leading to a 53% increase in downloads over last year.
Profitability, as well as consistent growth fueled by strong business development, are why this is a winning stock.
Jennifer Saibil has positions in Airbnb, Inc. John Ballard has positions in Netflix. Parkev Tatevosian has positions in Airbnb, Inc. and Netflix. The Motley Fool has positions in and recommends Airbnb, Inc., Etsy, and Netflix. The Motley Fool has a disclosure policy.