2022 has not been a pleasant year for investors, with the stock market posting 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 to come. It is the power of compound growth over decades that creates wealth.
Three Motley Fool contributors were recently selected Airbnb (ABNB 1.97%), netflix (NFLX -0.50%)and Etsy (ETSY -1.14%) like three stocks worth keeping 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 seen phenomenal growth since its inception in 2007. There are more than 4 million hosts offering unique places to stay that set the experience apart from large hotel chains, and this competitive advantage is driving a strong growth as people start to travel again.
Airbnb continued to perform strongly in the first quarter, with more than 100 million room nights and experiences booked and 59% year-over-year growth. With headwinds weighing on the economy, with consumers facing 40-year high inflation, Airbnb is clearly showing resilience and potential to serve more customers over time.
Indeed, Airbnb is barely tapping into its potential right now. Management had previously estimated its total addressable market at $3.4 trillion. With gross booking value totaling $17 billion last quarter, Airbnb has plenty of room for growth.
Airbnb is taking advantage of 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 US Travel Association expects travel spending to grow from $1.05 trillion in 2022 to $1.26 trillion by 2026. That’s about $250 billion in additional spending up for grabs.
Airbnb has the brand and the technology to reward shareholders with great returns for decades to come.
Families can be entertained all month at an affordable price with Netflix
Parkev Tatevosyan (Netflix): Netflix is one of my favorite all-season stocks to consider buying right now. Watching movies and shows is something people do in all economic scenarios. Additionally, a Netflix subscription costs less than $20 per month for the most expensive version. This means that in times of economic recession, when people tighten their budgets, Netflix could prove its worth.
Taking your family to the movies, to a restaurant or to a theme park costs more than streaming content on Netflix. As inflation pinches household budgets, a Netflix subscription offers excellent value for money. The strong value proposition may help explain why Netflix grew its revenue from $5.5 billion in 2014 to $29.7 billion in 2021. The company also achieved strong economies of scale during this time, making increase its operating profit from $403 million to $6.2 billion.
Meanwhile, investors sold Netflix shares amid fears of headwinds from economic reopening and growing competition. These are powerful opposing forces that should not be ignored, but investors have overreacted. Indeed, stocks are down 69% from their highs. Netflix stock is trading at its lowest price-to-earnings ratio in five years. Investors looking for a growth stock they can hold in any market will do well buying Netflix stock.
An e-commerce winner in any market
Jennifer Saibil (Etsy): You know the market has changed when investors applaud an 11% year-over-year sales increase after Etsy posted triple-digit growth last year. But revenue of $585 million hit the upper end of its Q2 2022 guidance of $540 million to $590 million, and also topped analysts’ average forecast of $556 million. Earnings per share (EPS) of $0.51 was down from $0.68 a year ago, but beat analysts’ consensus estimate of $0.32. Now that expectations have been significantly lowered, Etsy has easily beaten them.
A number of factors contributed to the strong second quarter performance. First and foremost, an increase in fees charged to sellers. Although there was an initial setback, which management had anticipated, it quickly faded and played a major role in Etsy’s performance. Active sellers have actually increased by more than 40% from last year despite the increase in fees, which speaks volumes about the power of the brand and the dominance of the platform in its field.
At the time of the announcement, management said it was necessary to be able to invest in the growth of the platform. It was crucial to demonstrate growth in the second quarter. Etsy Marketplace gross merchandise volume was down 6% from last year despite adding 6 million new customers, but marketplace revenue was up 11%.
And the company has indeed invested heavily in its platform. In the second quarter, it improved its search and advertising functions, as well as its international shipping capabilities. Etsy actively marketed its app, resulting in a 53% increase in downloads over last year.
Profitability, along with steady growth fueled by strong business development, is why this is a winning stock.