What are the 2 growth stocks to buy right now?
Investors might be worn down by a declining stock market and a steady assault of negative stories. It’s difficult to be optimistic. But now is the moment to remember that every bear market in the United States has been followed by a bull market. Purchasing high-quality enterprises at today’s low costs can result in life-changing returns in the long term.
MercadoLibre (NASDAQ: MELI) and Airbnb are two such companies that could potentially contribute to remarkable long-term gains (NASDAQ: ABNB). Let’s look at why.
Reaching escape velocity on MercadoLibre
MercadoLibre had another amazing accomplishment despite difficult macroeconomic conditions. In the third quarter of 2022, its e-commerce business recorded a 10% increase in the number of unique buyers. Gross merchandise volume (GMV), or the total monetary worth of all transactions on its platform, increased 32% in constant currency (18% in US dollars), outpacing the previous quarter’s 26% increase. The company maintained solid momentum in its top three core markets, Argentina, Brazil, and Mexico, where GMV increased by 87%, 20%, and 23%, respectively.
While online retail globally struggles in the face of a slowing global economy, MercadoLibre’s thoughtful approach and proactive investments in the key pillars of e-commerce — consumer experience, technology, a diverse range of product categories, smart promotions, and its shipping and logistics network — have made it a go-to destination for Latin American customers.
The rising efficiency of its transportation network, Mercado Envios, is allowing the company to dispatch products faster while incurring fewer internal costs. And, despite being in its early stages, the company’s advertising revenue is rapidly expanding. Ad revenue increased from 0.9% of GMV a year ago to 1.3% in the most recent quarter.
Even more impressive was the development of MercadoLibre’s fintech division, MercadoPago, an increasing one-stop-shop for financial services. More and more vendors and buyers on MercadoLibre’s e-commerce platform, as well as MercadoPago customers, are taking advantage of the company’s credit facilities and personal loans.
Asset management and savings options on MercadoPago are very popular. MercadoPago’s services were used by a record 40 million unique clients in the third quarter. MercadoPago has now accumulated 10 million users in the last year. MercadoPago’s overall payment volume increased by 76% in constant currency (54% in US dollars) in the third quarter, hitting $32 billion.
The e-commerce and fintech businesses work together to keep customers engaged with MercadoLibre, and the symbiotic link between the two lines of business is driving the outcomes. In constant currency, revenue increased 61% in the third quarter to $2.7 billion. It is pretty astounding to record that outstanding growth on top of the explosive rise of 73% a year ago. Profitability rose as the company improved operational efficiency; the gross margin increased to 50.1% from 43.4% a year ago, and the operating margin increased to 11% from 8.6%.
MercadoLibre is growing to a size and scale that makes it tough for competitors to compete. With its expanding product ecosystem and increasing customer ties, the company continues to rack up fantastic results quarter after quarter. Despite this, the company is trading near its 10-year low price-to-sales ratio of 4.8. Purchasing stock now will most likely make investors extremely happy over the next five years.
Airbnb: A profitable business model
Airbnb provides a marketplace where travelers can choose from an unrivaled selection of lodgings and pricing points. The brand has become a household name, as well as a source of income for over 4 million hosts (people who rent out their homes to travelers) around the world.
Although Airbnb appears to be a vacation or lodging firm on the surface, its business model differs fundamentally from traditional hotels and resorts in that it does not own, lease, maintain, or operate the properties offered on its site. This considerably decreases the company’s initial and continuing capital expenditures and operating expenses.
Furthermore, because of its streamlined technological infrastructure, the incremental cost and time of adding a new listing or serving a new passenger for Airbnb are essentially non-existent. In other words, growth for Airbnb occurs at a substantially lower cost and at a far faster rate than growth for traditional hotels that rely on real assets. As more people use Airbnb, more hosts want to join, resulting in a natural network effect.
Despite a challenging economic environment, consumers’ desire to travel did not appear to fade in the third quarter of 2022, with total nights and experiences booked for the period reaching nearly 100 million, up 25% from the previous year. The average daily charge for stays increased by 5% to $155. With such high demand for Airbnb’s services, the most recent quarter was the company’s most profitable, with revenue reaching $2.9 billion, up 29% year on year.
With its efficient business model, Airbnb increased its net income by 46% year on year to $1.2 billion and its free cash flow by 80% to $960 million. Over the last year, the company has generated an astonishing $3.3 billion in free cash flow at a margin of 40%, which means that for every dollar of sales earned, the company generates $0.40 in free cash flow. While Airbnb is still a young public business, it appears to be on its way to becoming a cash flow machine.
Despite the consistent performance, Airbnb’s shares are trading near 10-year lows on metrics such as price-to-sales (9.1), price-to-earnings (56), and price-to-free cash flow (9.1). While shares may appear to be slightly overpriced, Airbnb’s global brand, scalable business model, network effects, and future possibilities justify the market premium. Investing in Airbnb now will most certainly pay you handsomely in the long term.
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