The last two years have been a chaotic time for investors. The market crashed at the start of the COVID-19 pandemic in March of 2020, rallied hard the following 12 to 18 months, and is now in a sharp downcycle yet again to start 2022. With the Federal Reserve set to raise interest rates and the economic fallout of the Russian invasion of Ukraine, we might be near the start of another bear market.
No one can predict with 100% certainty where the market will be a few months or a year from now. But anyone can build a watchlist of stocks they're prepared to buy when volatility inevitably pokes its ugly head out again. Match Group (MTCH 0.57%) and Airbnb (ABNB 0.77%) are two growth stocks you'll regret not buying if we head into an extended bear market. Here's why.
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1. Match Group
Match Group owns a portfolio of online dating websites and applications and is the market leader in the emerging industry. The most well-known of these is Tinder, the leading dating app around the world that brought in $1.65 billion in revenue in 2021. Other important services include Hinge (a rapidly growing dating app focused on relationships and an older demographic), Match.com (the original online dating site), and a group of smaller dating apps focused on serving different cultural niches.
Since 2017, Match Group has grown its revenue by 124%, riding the tailwind of online dating as it becomes more and more normalized around the world. In 2021, the company did $2.98 billion in revenue, making up more than half of the $5.6 billion in overall spending on online dating last year. While growth has been rapid, it doesn't look like these apps are getting anywhere near market saturation. According to third-party estimates, there are 323 million users of online dating apps around the world. That may seem like a lot, but once you consider that over 6 billion people now own a smartphone and have access to these services, I think the industry has a long runway ahead of it.
As of this writing, Match Group stock trades at a market cap of $29 billion. Last year, it generated $851 million in operating income. This gives the stock a price-to-operating-income (P/OI) of 34, which is a healthy premium to the market average. If stocks continue to fall in 2022, Match Group's P/OI could become much more attractive, which is why it should be at the top of your watchlist right now.
2. Airbnb
Airbnb is a travel company that allows people to rent out their homes and other dwellings on its online marketplace. The business was founded in 2008 in San Francisco and is one of the most famous start-ups to come out of Silicon Valley in the last 15 years. In late 2020, Airbnb decided to go public through an initial public offering (IPO), and it is now one of the largest technology companies in the world with a market cap of $102 billion.
In 2021, Airbnb customers booked 300 million nights and experiences on the platform (experiences are activities a host can offer to guide a guest on during a stay). This was up 56% compared to 2020, which was hurt badly from the pandemic travel slowdown. However, it is still down 8% from two years ago, which shows that the platform is still facing demand headwinds, especially with international travel. Eventually, once COVID-19 is in the rearview mirror, these headwinds will abate and Airbnb's platform will get a nice boost in demand.
Moving to financials, the company saw $47 billion in gross booking value (GBV) last year, which is the total amount of money that flowed through the Airbnb platform. This GBV number turned into $6 billion in revenue, up 77% year over year, and $1.6 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), up from an adjusted EBITDA loss in 2020.
There are a few ways Airbnb can continue growing GBV, revenue, and profits over the next few years. One is to keep gaining market share of global tourism spend, which was $1.9 trillion in 2019 (the last full year before the pandemic) and $1.3 trillion in 2021. It should also see a lift from the growth of remote work. According to management, stays on Airbnb of 28 days or longer are its fastest-growing category, with one in five nights now booked on trips that are a month or longer. If this trend continues, Airbnb has a great opportunity to become the platform of choice when people go on long-term remote work trips.
Like Match Group, Airbnb stock has a premium valuation, with a price-to-earnings ratio (P/E) of 64 based on its 2021 adjusted EBITDA number. I'm confident Airbnb can continue growing its revenue and profits over the next few years, but until the valuation gets a bit more palatable, it is going to remain on the watchlist. If the bear market drawdown continues, it could become an attractive buying opportunity at some point in the next year.
