The S&P 500 kicked the year off with its worst first half since 1970, as soaring inflation turned investors bearish on the stock market. Despite recouping some of those losses, the benchmark index is still down 11.5% from its high. But investors can take solace in this fact: The stock market has rebounded from every past downturn, and there is no reason to believe this situation is any different.
That means another bull market is almost certainly on the way, which makes right now a great time to buy Shopify (SHOP -2.37%) and Airbnb (ABNB 0.10%).
Here's what you should know about these two growth stocks.
1. Shopify
Shopify is the retail operating system for over 2 million businesses. Its cloud software allows merchants to manage sales across physical and digital stores from a single platform. Merchants can list items on marketplaces like Amazon and JD.com, and social media like Pinterest and TikTok, but they can also engage buyers through direct-to-consumer (D2C) websites. That feature is a big deal, and it distinguishes Shopify from many competitors. Specifically, D2C business models afford merchants more control over the buyer experience, which makes it easier to build lasting relationships with customers.
Shopify also provides a number of adjacent services like payment processing, financing, and money management, though its most ambitious undertaking is the Shopify Fulfillment Network (SNF). The SFN is a system of warehouses powered by robotics and predictive software that will ultimately allow merchants to offer two-day delivery across the U.S. Management expects the SFN to reach scale by 2024.
In short, Shopify simplifies almost every aspect of commerce, and that value proposition is resonating with business owners. A recent report from G2 Grid indicates that Shopify is the most popular e-commerce software platform as measured by both market presence and user satisfaction.
From a financial perspective, the company struggled in the first half of the year as the effects of the pandemic diminished and rising prices put pressure on consumer spending. But those headwinds are temporary, and Shopify has still delivered respectable results over the past year. Revenue climbed 30% to $5 billion, and the company generated positive cash from operations of $59 million.
Looking ahead, one particularly exciting growth opportunity is Shopify Plus, a customizable commerce platform designed for larger businesses. Shopify had over 14,000 Plus merchants at the end of 2021, up 40% from the prior year. But the company recently added new business-to-business (B2B) commerce tools to platform, meaning Plus merchants can now sell D2C and B2B from the same store. That dramatically expands Shopify's addressable market.
By 2025, B2B e-commerce sales will total $2.4 trillion in the U.S. alone, while business-to-consumer e-commerce sales will hit $1.5 trillion. And with shares currently trading at 10.3 times sales -- an absolute bargain compared to the three-year average of 37.8 times sales -- now is great time to buy this growth stock.
2. Airbnb
Airbnb has turned the travel industry upside down with its asset-light business model. Rather than spending months and millions of dollars to build rentals, Airbnb sources properties from hosts in thousands of cities around the world. That means it can adapt quickly to changing consumer travel preferences, while avoiding costs like property upkeep. Those qualities give it an edge over traditional hospitality companies.
Additionally, Airbnb also offers a much broader and more immersive range of inventory on its marketplace. Guests can book stays virtually anywhere, across almost any type of lodging imaginable. That includes everything from rural farmhouses and urban apartments, to tropical treehouses and luxury villas.
The benefits of Airbnb's business model are evident in its ability to generate cash. Revenue climbed 69% to $7.4 billion over the past year, and free cash flow (FCF) skyrocketed 101% to $2.9 billion. That equates to a FCF margin of 39%. For context, Marriott International's FCF margin is about 10%.
Prior to the pandemic, travel and tourism accounted for more than 10% of global economic output, totaling $9.6 trillion, and Airbnb is innovating quickly to capitalize on that opportunity. Last year, the company added flexible search parameters to the platform, allowing guests to surface travel ideas when they are flexible on date and location. This year, Airbnb added 55 search categories -- national parks, beachfront, amazing pools, and more -- catering to guests looking for a very specific experience.
Those innovations underpin a subtle evolution. Airbnb is becoming a source of inspiration and personalized recommendations, which allows its platform to engage travelers earlier in the trip-planning process.
Shares of Airbnb are currently 41% off their high, trading at a reasonable 10.8 times sales, That's why investors should consider buying this growth stock today.
