If you want to get richer over the next decade or longer, the best strategy is to simply start investing. From 1927 to 2018, the chances of making money were heavily stacked in the long-term investor's favor: Over a one-year holding period, the chance of positive returns were just 73% of the time. Ten-year periods during this timeframe, however, had a 94% chance of producing a positive return.
With time in the market proving better than a strategy of timing the market, it would be beneficial for any new investor to become a lifelong investor as early as possible. Airbnb (ABNB -0.96%) and Latch (LTCH 1.18%) could potentially provide incredible returns over the long term, which is why investors looking to get richer should consider these two companies.
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A new way to vacation
Many of us have likely used Airbnb to find a unique place to stay for our vacations. The company does not offer the standard hotel room, but rather it allows guests to vacation in whole houses, cottages, treehouses, and millions of other unique stays.
Airbnb's competitive advantage is twofold. First, it focuses very hard on making Airbnb one of the best places for hosts looking to rent out their spaces. In November, the company announced AirCover -- top to bottom coverage for hosts to protect their homes with everything from liability insurance to pet damage protection. The company already has over 4 million hosts across 200 countries around the world, but the company has been extremely focused on growing this number and making the hosting experience on Airbnb the best in the industry.
The other side of the coin is customer experience. Recently, Airbnb released a verified WiFi feature, which eliminates one concern that people looking to use Airbnb to work from anywhere had: reliable WiFi. Now, consumers can use Airbnb to find unique locations to live and work from without worrying about the strength of their internet connection. There are many new features and services are in the works, including rewards programs, the opportunity to pay with cryptocurrency, and improving the pricing displays on the mobile app.
Airbnb has a major focus on continuous improvement of its platform, and this mindset has led the company to provide a strong financial performance. In the third quarter, the company reported revenue of $2.2 billion -- which grew 37% compared to Q3 2019 -- showing how Airbnb has already bounced back its pandemic turmoil and it hit record-high revenue. Competitors like Hilton Worldwide and Marriott International have not even come close to reaching their pre-lockdown revenue figures.
Shares of Airbnb have slumped, falling 23% in the past three months despite the significant innovation and growth of its platform. This puts Airbnb's valuation at 13.5 forward sales -- a valuation much higher than Marriott or Hilton. However, comparing Airbnb to Hilton in terms of innovation is like comparing Netflix to Blockbuster in the early 2000s; the disparity of innovation between Airbnb and its competitors will likely lead to significant outperformance for the former over the next decade. With a forward-looking management team, I anticipate that Airbnb will be an amazing company to own for the next 10 years or longer.
The security and management system for our era
Latch operates a software-as-a-service (SaaS) and hardware business by providing smart locks and software to run them for large-scale apartment buildings. The locks do not need keys to open but can be opened by a simple tap on a phone. The software, however, is the real treasure of Latch. It allows apartment managers to have a bird's eye view of the entire apartment complex. Managers can allow visitors or service people into spaces from the comfort of their office, and it makes it easy for managers to identify potential theft and spot break-ins.
Since 2017, the company has not lost a single customer, and Latch products are being installed in 30% of all U.S. apartments under construction today. Once its locks are installed in a building, it can be difficult to remove and replace all of the locks, which is why Latch's customer churn is nonexistent. On top of that, Latch estimates that its products allow managers to spend $200 less on expenses annually per apartment while being able to increase revenue by $350 annually per apartment because it allows some landlords to increase rent.
Due to Latch's major adoption across the country, its revenue by 120% year over year in Q3 to $11 million, but more importantly, its bookings grew 181% to $96 million. Latch makes deals with future landlords before apartment buildings are even built, so booking are promises by managers to become customers after construction has ended. Construction can take up to two years, so these bookings will likely convert to revenue over that time frame. However, they are not binding, so Latch does have a risk of managers bailing before becoming customers.
The company is losing money right now -- it lost $112 million in the first nine months of 2021 -- but its losses is growing slower than revenue. As the company continues to scale, these losses will become less significant compared to its revenue. Latch currently trades at 26 times sales -- a very high multiple for any tech stock. However, if the company can continue growing at triple-digit rates for the next year, this multiple will shrink rapidly. With the major adoption Latch is gaining in this $54 billion market, I think the company could see success over the next 10 years and shareholders could be rewarded nicely over that period.
