With the world facing economic issues, including inflation, equity markets are down. To make matters worse, there are still geopolitical tensions to contend with that could potentially worsen and further impact the economy. In this environment, many might choose to avoid stocks altogether.
But since it's impossible to know when the market will bottom out, it might be worth considering purchasing shares of excellent companies at a discount right now. Maybe these stocks will be southbound longer, but eventually, they will recover and deliver solid returns to patient investors.
Let's look at two companies whose shares investors should consider buying on the dip: Airbnb (ABNB 0.73%) and Pinterest (PINS -0.14%).
1. Airbnb
Airbnb's recent struggles do not fully reflect its financial performance. While the coronavirus pandemic harmed the company's business -- since the entire travel and hospitality industry slowed down considerably during the early stage of the coronavirus outbreak -- things are much better now. For instance, during the first quarter, Airbnb's revenue, nights and experiences booked, and bottom line all exceeded their 2019 levels. That means Airbnb's performance now exceeds what it was pre-COVID.
The company's revenue in the first quarter increased by 70% year over year -- and by 80% compared to Q1 2019 -- to $1.5 billion. Airbnb's nights and experiences jumped by 59% year over year (and by 26% compared to three years ago) to 102.1 million. Airbnb's net loss of $19 million for the quarter compared favorably to the net loss of $1.2 billion reported during the year-ago period and the net loss of $292 million recorded during the first quarter of 2019.
Still, the red ink on the bottom line isn't helping Airbnb's case, not in today's tricky environment, especially as fears of a coming recession are rising. The good news, though, is that there are plenty of reasons to be optimistic about the company's ability to continue growing its revenue and eventually become profitable. One key consequence of the pandemic was the acceleration of the shift to remote work.
It isn't that everyone is working from home nowadays, but many more people are, and many of them are traveling while doing so. While on the road, they need a place to stay. The company's rentals often offer more perks than hotels: privacy, amenities, lower prices, etc. According to Statista, spending on the hotel and resorts industry rose from roughly $1 trillion in 2011 to $1.5 trillion in 2019 before dropping precipitously in 2020.
As the pandemic subsides, expect this growth trend to recover. That bodes well for Airbnb's future as it continues to increase the number of renters and customers on its platform. Although a recession might temporarily disrupt business, the tech company is well-positioned for long-term success.
2. Pinterest
Unlike Airbnb, Pinterest performed well during the pandemic. People stuck at home due to government-imposed lockdowns, business closures, and voluntary efforts to avoid catching COVID-19 spent more time on social media. But the company's monthly active users (MAUs) dropped for most of last year as COVID vaccinations increased.
Since Pinterest makes money through the ads businesses run on its platform, it's not surprising that a declining userbase scared away investors. Pinterest is also facing competition from video-centric platforms such as TikTok, which are taking up a lot of the time people are spending online.
Pandemic-related dynamics aside, though, Pinterest's MAUs of 433 million as of the end of the first quarter, which decreased by 9% year over year, remain well above the 335 million recorded at the end of 2019 before the pandemic started taking shape. There is hope for the company to start growing this metric on a year-over-year basis again (it grew by 2 million sequentially in the first quarter); here are two reasons why.
First, Pinterest is not a copycat of other social media platforms. It offers a unique "image discovery" flavor that helps its users -- or pinners, as they are called -- generate inspiration when engaging in various creative activities. That's why Pinterest's userbase can overlap at least somewhat with those of other social media giants.
Second, the platform focuses on positive and inspiring ideas instead of contentious and divisive ones such as politics; the platform can be a break from more touchy issues for those who need one. In my view, Pinterest's userbase will reverse its recent negative trends eventually. In the meantime, the company's stock is down substantially over the past year, even as it continues to grow its revenue.
In the first quarter, Pinterest's top line jumped by 18% year over year to $574.9 million, in part thanks to its average revenue per user increasing by 28% year over year to $1.33. The company's net loss of $5.3 million was better than the net loss of $21.7 million reported in the first quarter of 2021. While Pinterest isn't out of the woods yet, the sell-off looks overdone since shares are now more or less at their pre-pandemic levels.
It's worth it to add shares of this social media giant at their current prices.
