People save money for many reasons, but planning for retirement is among the most common. We all want to be financially independent, and investing in the stock market is a great way to achieve that goal. Over the last 30 years, the S&P 500 has produced an 8.6% annualized return. At that pace, if you invest $150 weekly in an S&P 500 ETF, you would have over $1 million in three decades. And with a diversified portfolio of individual stocks, you could do even better.
With that in mind, Airbnb (ABNB +1.66%) and Block (SQ +0.40%) look like smart stocks to buy and hold until you retire. Here's why.
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1. Airbnb
Prior to the pandemic, the multitrillion-dollar travel and tourism industry accounted for more than 10% of the global economy. That number was cut in half in the wake of mandatory lockdowns and social-distancing protocols. But with COVID-19 cases trending downward, the industry is ready to rebound, and few companies are better positioned to benefit than Airbnb.
Its platform connects potential guests with four million hosts around the world, helping travelers find lodgings in hundreds of different countries. Better yet, Airbnb offers more flexibility than traditional hotels, both in terms of location and type of lodging. Guests can book a stay at a farmhouse in the country, a cabin in the mountains, or an apartment in the city. Airbnb even lists 170,000 unique stays, including treehouses, adobes, and castles.
The company can onboard a new host in minutes, but building a new hotel takes years and costs millions of dollars. That makes Airbnb more agile, allowing it to capitalize on changes in consumer travel preferences much more quickly. That edge has fueled explosive financial results. In 2021, revenue soared 77% to $6 billion, and the company posted positive free cash flow of $2.2 billion, up from a negative $667 million in the prior year. Better yet, the future looks even more promising.
NASDAQ: ABNB
Key Data Points
Airbnb puts its addressable market at $3.4 trillion, and the company is executing on a strong growth strategy. Last year, it simplified the onboarding process for hosts, and it introduced flexible search parameters for guests. Both initiatives were wildly successful. Airbnb finished the year with a record six million active listings, and guests have used the flexible search option 800 million times. In short, the company is successfully disrupting the whole industry, and that's why it looks like a smart stock to buy and hold until you retire.
2. Block
Block makes financial services more accessible for both businesses and consumers. Its Square ecosystem is a cohesive set of products, comprising all of the hardware, software, and services a merchant needs to run a business across digital and physical channels. That includes solutions for payment processing and financing, customer loyalty and marketing, and employee payroll. Similarly, Cash App allows consumers to send, spend, and invest money, and even prepare taxes from a single platform.
Better yet, businesses and consumers are spending more money over time as they adopt new products. For instance, 38% of Square's gross profit came from sellers using at least four products in 2021, up from 10% in 2016. Similarly, 31% of the 44 million monthly active Cash App users also use the Cash Card (a linked debit card), up from 22% of the 24 million monthly active users in 2019. That's important, because Cash Card users generate nearly five times more gross profit than non-users.
That momentum has translated into strong financial results. In 2021, gross profit rose 62% to $4.4 billion, and the company generated $714 million in free cash flow, up twentyfold from $35 million in 2020. More importantly, Block is well positioned for future growth.
NYSE: SQ
Key Data Points
Management valued its total addressable market (TAM) at $160 billion in 2020. But its product offering has expanded over the last two years, meaning its TAM is probably bigger today. Block now provides banking services (deposit accounts) to Square sellers, and it acquired buy now, pay later specialist Afterpay earlier this year. That move could supercharge both halves of its business by driving sales for Square merchants and facilitating deal discovery for Cash App consumers. Block is set to host its next Investor Day on May 18, and management will likely provide an updated TAM figure.
Regardless, with its broad product portfolio and digital-first business model, Block is disrupting the merchant services and consumer finance industries, putting it in front of a big market opportunity. That's why this growth stock looks like a smart long-term investment.
