I won't sugarcoat it. The past few months have not been kind to growth investors. Several of my favorite stocks are down by 30%, 50%, or much more in some cases, and I'm sure many people reading this are in the same boat.
The good news is that now could be a great time to be a patient, long-term investor. Three excellent businesses that have already grown tremendously and have been beaten down recently are MercadoLibre (MELI -0.45%), Etsy (ETSY 0.49%), and Airbnb (ABNB 0.10%). All have the potential to dominate their respective industries, and still have plenty of room to grow. And they're all on sale right now.
Image source: Getty Images.
Latin American e-commerce and so much more
MercadoLibre is often called the Amazon of Latin America, and for good reason. It has a dominant presence in some of the markets where it operates, such as Brazil and Argentina. But there's a lot more to the business. The Mercado Pago payments platform resembles an earlier-stage PayPal Holdings. Its lending business isn't much different from how Block started its Square Capital lending operation. And there are components of the business that are close to what Shopify and eBay do.
The point is that an investment in MercadoLibre feels like you're investing in several of the most successful companies in the United States, but at much earlier stages in their growth cycles. MercadoLibre is down by more than 45% from its 2021 high, although the business is heading in the right direction. The company is growing impressively and has a massive opportunity. Now could be a great time to add it to a long-term investment portfolio.
A massive market opportunity
About seven years ago, several analysts were calling for Etsy's demise when Amazon rolled out a handmade and unique goods platform of its own. Now, Etsy has nearly 90 million active customers and sold more than $3 billion of merchandise through its platform in the third quarter alone.
Etsy estimates its addressable market for unique and handmade online shopping to be about $100 billion in size, and with over $12 billion in annualized merchandise sales, it's certainly made a big dent in that. But if you include all sales in Etsy's retail categories (not just unique items), the market is $250 billion in size. Add in offline sales, and it's $1.7 trillion.
What's more, these figures are only referring to Etsy. It has been aggressively expanding its brand portfolio with acquisitions of Reverb (music marketplace), Depop (fashion resale), and Elo7 (often called the Etsy of Brazil), and this makes the opportunity even more compelling. With shares down by more than 55%, now is a great time to take a closer look.
The new way to travel
Airbnb is the least beaten-down stock of the three discussed here, down by about 28% from the highs. But there's a good reason. Airbnb's business has been on fire, and the company still has a massive opportunity to go after.
In the third quarter of 2021 (the most recent we have data for), 79.7 million nights and experiences were booked on Airbnb's platform, with a gross booking value of $11.9 billion. This generated over $2 billion in revenue and $834 million in net income for the company -- yes, it is profitable.
But this could be just the beginning. The market for short-term travel rentals is estimated to be a $1.2 trillion opportunity worldwide, and if you include long-term rentals (Airbnb's fastest-growing type of revenue) and experiences, the market size is $3.4 trillion. So, while Airbnb has made tremendous progress, it could still have a massive amount of growth in the years ahead.
Buy for the long run
To be perfectly clear, these are stocks that I think investors who buy and hold for years will do very well with, but I have no idea what will happen in the near term. In fact, if the factors contributing to the growth stock sell-off -- like inflation and rising interest rates -- turn out to be even worse than expected, they could go down even further. In short, I'm confident that all three of these will be worth significantly more in 10 years, but it could be a bit of a roller coaster ride for the rest of 2022.
