Investing in growth stocks with a long time horizon -- like decades -- gives time for the power of compounding to take hold. Even modest growth rates can deliver explosive shareholder returns when compounded for 10 years or more.
Target (TGT 1.28%) and Airbnb (ABNB 1.09%) are two growth stocks that can be great buys for long-term investors. Here's why each should be added to your list of growth stocks to consider in 2022.
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1. Target boasts an omnichannel advantage
Mega-retailer Target has done an excellent job of turning its brick-and-mortar stores into a competitive advantage. For several years, consumers have shifted more of their spending online. This trend has caused most brick-and-mortar retailers mountains of trouble. But Target has been arguably one of the best to adapt to these changing consumer dynamics. It made investments in technology and store infrastructure to make the best of both online and in-person shopping.
As a result, it has a strong slate of options for consumers. Folks can buy online and pick up in the store, buy online and have the item delivered to their car in a Target parking lot, buy online and get standard delivery to their home for free, or buy online and get the item delivered to their home within hours for a small fee. Of course, folks can still shop in person at the nearly 2,000 Target stores nationwide.
The features are undoubtedly a big reason Target has thrived since the pandemic's onset with sales growing 19.8% in its latest fiscal year. Indeed, same-day services have contributed $6 billion in sales growth for Target over the past two years. What's more, the added features give Target a competitive advantage over Amazon. While the e-commerce giant offers fast and free delivery, most items take several days to reach your home. With Target's new capabilities, shoppers have several ways to shop online and get their items in just a couple of hours.
The convenience and speed of delivery that Target provides its customers could allow its shareholders to reap the benefits for the next decade.
2. Airbnb is favored by travelers
Travel facilitator Airbnb is an exciting company poised to thrive over the next decade. The global hotel and resort industry is enormous -- worth an estimated $1.5 trillion in pre-pandemic 2019. Of course, the coronavirus has disrupted and delayed travel plans for millions of people. Still, the market will eventually rebound and perhaps even exceed previous levels when fears of contracting COVID-19 are reduced or eliminated.
Airbnb is going to be there to help. It operates a platform that encourages people to list properties or rooms for travelers to book. The site is gaining traction with consumers and hosts alike because of its customizable convenience. You don't need to make an entire home available; you can list one room if that fits your circumstances better. Similarly, travelers can book a home, a room, a guest house, a converted garage, of even a treehouse (yes, really). It's resonating better with folks than the one-size-fits-all hotel strategy which only lets you choose between a king-sized bed or two queen-sized ones in your room.
Pre-pandemic, Airbnb was already growing at a good clip with revenue up 42% in 2018 and another 32% in 2019 before sliding nearly 30% in 2020. And now, business is growing again. In the company's latest quarter, revenue was 36% higher than the comparable quarter in 2019 despite a still-raging pandemic. The company is making a profit too -- thanks to its efforts to decrease operating expenses at the onset of the pandemic. In the third quarter, net income surged 213% higher than the same quarter in 2019.
There's every reason to believe Airbnb will continue to gain market share in the hotel and resort industry as the industry itself recovers from the pandemic. Airbnb should also benefit from a more efficient cost structure that stands to help increase profits.
Target and Airbnb are two growth stocks poised to thrive in the next decade. Investors could do well buying and holding onto these excellent businesses over that time.
