Investors have fled the market in droves this year as fears of a recession, geopolitical tension, and 40-year-high inflation have brought about a pessimistic outlook on Wall Street. There's no doubt that things could get worse before they get better, but the silver lining is that plenty of corporations are trading for much lower prices than they were just a year ago.
Economic troubles seem to be impacting Airbnb. Inflation is causing consumers to redirect more funds toward those services deemed essential.
Most people wouldn't include vacation rentals in this category. Also, some economists believe a recession will hit the U.S. economy within the next year. Consumers could further reduce spending in a recession, thereby harming Airbnb's business.
All of these factors explain Airbnb's poor performance on the market more clearly than the company's financial results. The hospitality industry has been rebounding from its pandemic lows, and Airbnb has been riding that wave. In the second quarter, the company's revenue of $2.1 billion increased by an impressive 58% year over year and by 73%, compared to the same period of 2019, before the pandemic hit.
Airbnb's net income of $379 million was better than the net loss of $68 million that was reported during the year-ago period. In the comparable 2019 period, Airbnb's net loss came in at $297 million.
Perhaps Airbnb won't be able to keep up this pace in the near term due to economic troubles. But even if it doesn't, investors should stay the course for two reasons. First, Airbnb boasts a massive addressable market. The company put that number at $3.4 trillion. Perhaps that's a bit optimistic, but perfect estimates aside, the point is that Airbnb is looking at a massive opportunity to grow revenue and earnings.
Second, the company benefits from the flywheel effect. As more host homes register on Airbnb's platform, the more options its customers have. It works similarly on the other side of the equation. As new clients looking for a vast library of vacation rentals sign up on Airbnb's platform, it becomes more attractive to would-be hosts.
The flywheel effect creates a strong competitive edge for Airbnb, ensuring it will remain a notable player in this highly competitive industry. Even if its shares remain volatile in the next year due to the challenging environment, Airbnb can reward long-term investors who ride out the current downturn without selling their shares.
Adyen is a fintech specialist based in the Netherlands. The company provides its clients with payment solutions that combine payment gateways, processing, risk management, and more onto the same platform.
The company's services are incredibly valuable to multinational corporations that typically deal with different providers for these individual services in various countries. That's how it has attracted some notable clients to its list of customers, which includes such major corporations as Microsoft and Spotify.
The challenging macroeconomic environment -- and fears of a coming recession -- have contributed to Adyen's poor stock market performance this year. After all, the fintech giant makes money by collecting various transaction fees. A slowdown in payment activity, due to inflation or a recession, affects Adyen's operations.
Further, the company's shares aren't cheap. They're trading at a trailing forward price-to-earnings (P/E) ratio of 66.8, which is even more expensive than competitors like PayPal.
However, Adyen's financial results continue to impress. The company's revenue in the first half of the year jumped by 37% year over year to 608.5 million euros (about $602 million). Adyen's net income jumped by 38% year over year to 282.1 million euros ($279.1 million).
The payment-processing market is on a growth path. Some estimate it will expand at a compound annual growth rate of 13.7% through 2030.
Adyen is sure to profit from this opportunity. It has already established itself as a leader and benefits from a competitive edge -- high switching costs. Adyen's services are essential to the day-to-day operations of its clients, who risk disrupting their business by switching to a different payment platform. That puts Adyen in an excellent position to keep most of its clients and increase its revenue and profits as payment volume continues to grow.