Between 1928 and 2021, the S&P 500 generated positive returns during 62 calendar years. In other words, the broad market gained ground about two years out of every three. Those aren't bad odds for investors. But over the same time period, the S&P 500 also generated a total return of approximately 10% per year.
Thus, while your holdings may go up or down in any given year, your odds of generating a profit with a diversified portfolio improve as your investing time frame gets longer. That illustrates the importance of a buy-and-hold mindset. Rather than trying to time the market, focus on investing in high-quality stocks for the long haul. For instance, Airbnb (ABNB 1.17%) and MercadoLibre (MELI -1.79%) are growing quickly, and both could make you richer over the next decade.
Image source: Airbnb.
The case for Airbnb
The pandemic has significantly altered the course of numerous industries -- few of them more than travel and tourism. Far more people are working remotely, meaning they have greater flexibility about where and when they travel, and how long they stay. Airbnb's business model plays perfectly into that trend.
Its platform connects 4 million hosts with potential guests, helping travelers find lodgings in 100,000 cities around the world. And last year, the company introduced flexible search parameters for dates and destinations, making it easier for guests to find the right Airbnb for them. As of the end of 2021's third quarter, that feature had been used more than 500 million times.
Additionally, compared to traditional hotels, Airbnb offers a more immersive experience for travelers. For instance, the platform lists private coastal cottages, rustic farmhouses, and trendy urban flats among its more than 170,000 unique lodgings -- think yurts, treehouses, and even castles. No hotel chain can match that range. And Airbnb's advantage on that front is reflected in its financial performance.
Over the past year, revenues at both Marriott and Hilton fell by roughly 16%, while Airbnb's revenue surged by 47% to $5.3 billion. The company also generated free cash flow of $1.6 billion over the last 12 months, and it posted a GAAP profit of $1.22 per diluted share in the third quarter. Investors should look for that momentum to continue.
Prior to the pandemic, travel and tourism accounted for more than 10% of the global economy, or $9.2 trillion in economic output. That figure was nearly cut in half in 2020, but as the industry continues to recover, Airbnb should benefit. Its platform offers greater flexibility -- both in terms of location and lodgings -- than traditional options. And among younger demographics, its brand has become synonymous with travel.
Management puts Airbnb's addressable market at $3.4 trillion, a figure that accounts for short-term stays, long-term stays, and experiences. But its gross bookings totaled $41.5 billion over the past year, representing just over 1% of its market opportunity. That leaves plenty of room for growth, which is why this stock looks like a smart long-term investment.
Image source: Getty Images.
The case for MercadoLibre
MercadoLibre is the most popular online marketplace in Latin America, which itself is one of the fastest-growing e-commerce markets in the world. In fact, the company's three primary geographies -- Argentina, Brazil, and Mexico -- all ranked among the top five countries in terms of online sales growth in 2021, according to eMarketer. And MercadoLibre's vertically integrated business model reinforces its strong competitive position.
For instance, merchants can use its fintech platform, Mercado Pago, to accept digital payments on and off the marketplace, both online and in stores. That's particularly important in a region like Latin America, where bank account and debit card penetration rates remain much lower than in the U.S. Additionally, MercadoLibre provides solutions for shipping and fulfillment, digital advertising, and financing, all of which simplify commerce for third-party sellers.
Like any marketplace-style business, MercadoLibre benefits from network effects: Each new buyer creates value for all the merchants on the platform, and vice versa. More importantly, the breadth of MercadoLibre's ecosystem makes its marketplace very sticky, meaning merchants are unlikely to cut ties with the company. In fact, MercadoLibre's take rate rose to 17% of gross merchandise volume in the most recent quarter, up from 12% in the prior year, evidence of the company's pricing power.
Not surprisingly, MercadoLibre's financial performance has been strong. Over the past 12 months, revenue skyrocketed by 89% to $6.3 billion, and the company posted a positive GAAP profit of $78.8 million compared to a loss of $4.1 million in the prior 12-month period. Shareholders should expect more of the same from MercadoLibre, as the company will benefit from significant tailwinds.
Specifically, internet penetration in Latin America sits at 62%, and just 38% of the population shops online. By comparison, internet penetration in the U.S. sits at 90%, and nearly 75% of the population uses e-commerce. As more consumers in Latin America gain the ability to go online, MercadoLibre's strong competitive position should draw an ever-growing number of them to its e-commerce and fintech platforms. And given the scope of the untapped market, I wouldn't be surprised to see this $54 billion company grow fivefold or even tenfold in value over the next decade.
