The market is still volatile after months of macro uncertainty, and growth stocks in general continue to suffer. But while many growth stocks are underperforming in this environment, others are posting soaring sales. With prices still low, this could be a great opportunity to buy on the dip.
Airbnb (ABNB -0.27%) and MercadoLibre (MELI 0.43%) are both down more than 30%, but they are showing robust performance and have huge potential for further gains in the future.
Airbnb remains resilient
Since its IPO in 2020, Airbnb has proven to be mostly resilient in the trying circumstances caused by the Covid-19 pandemic. Such resilience is reassuring to investors as the world continues to face challenges of all kinds.
Diving a little deeper into the nitty-gritty, in the second quarter, Airbnb’s sales rose 58% from a year ago to $2.1 billion, and net income was $379 million after losing $68 million last year. Airbnb has generated $2.9 billion in free cash flow over the past 12 months, putting it in a great position to refine its model and launch new businesses.
Airbnb has been really disruptive to the the travel industry, which in its traditional form often relies on expensive hotels located in busy areas. Airbnb’s asset-light model means it can add properties to its system without having to worry or spend money building new ones. This in turn can reduce costs for customers. Even more compelling, however, is not only that it can be cheaper, but there can be a full range of budget options for any type of vacation.
Not being tied to large buildings with many rooms also means Airbnb can offer rentals anywhere. Whether in rural areas where it doesn’t make sense for hoteliers to enter, or in hard-to-reach places that attract only limited interest, Airbnb can tap into unique spaces more easily than its competitors.
Despite last year’s rebound, Airbnb is meeting even higher demand. In the second quarter, it posted its highest quarterly number of nights and experiences booked at 103.7 million. And long stays (28 days or more) continue to be the fastest growing length of stay category. This trend — the result of the growing shift to remote working — has not moderated for several consecutive quarters.
Management expects full-year sales growth of about 26% year-over-year for the third quarter, as it expects to post its highest-ever quarterly revenue. At least part of this slowdown is due to a “significant headwind” linked to exchange rate variations compared to the third quarter of 2021.
Airbnb stock is down 33% this year, and the stock trades at a 39x one-year price-to-earnings ratio, which is an attractive valuation for a growth stock.
MercadoLibre’s momentum should continue
latin american e-commerce giant MercadoLibre continues to post phenomenal performance despite facing tough year-on-year comparisons. Sales growth has slowed from five straight quarters of triple-digit growth at the height of the pandemic to high double-digit growth.
In the second quarter, it posted another set of strong results. Sales rose 57% year over year to $4.8 billion, and net income rose 453% to $188 million. Unique active users grew from 98 million to 107 million, and gross merchandise volume, total payment volume, and total number of items shipped increased. In other words, it is a dynamic company. And it looks set to continue showing robust growth.
Management acknowledged that e-commerce was slowing down after a period of outrageous growth where people weren’t going out. The company is focused on providing merchants and customers with best-in-class experiences to drive additional growth during these challenging times. For example, on the customer side, it has expanded its product selection to offer a diverse assortment, and it offers more products with fast and free shipping. It has also improved its search functionality, which has led to greater customer loyalty. For merchants, he launched innovative solutions to offset rising shipping costs, such as MELI Extra, a crowd-sourced company that recruits individuals to make deliveries.
It has also added greater capabilities to its fintech segment, which provides payment solutions to businesses and individuals. Payment by QR code is increasingly adopted and MercadoLibre offers more services on its digital application, such as asset management.
This does not mean that there are no roadblocks. Competition is intensifying in the huge Latin American market, and Sea Limited is a progressive competitor. Its e-commerce app Shopee was again the top-ranked shopping app in Brazil in terms of time spent in-app, and it climbed to the top for average monthly active users. Brazil has the largest population in Latin America with nearly 214 million people, and it is one of MercadoLibre’s largest markets. However, MercadoLibre has a first-mover advantage and is taking many steps to maintain its leadership position, such as those described above.
MercadoLibre stock is down 33% so far in 2022, but it’s come back up and you can still jump on the bandwagon.
Jennifer Sabil has positions at Airbnb, Inc. and MercadoLibre. The Motley Fool holds positions and endorses Airbnb, Inc., MercadoLibre, and Sea Limited. The Motley Fool has a disclosure policy.
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