Given the massive declines in some stocks in 2022, the idea of "not worrying" may sound insane. Huge losses signal a considerable loss in confidence in a stock, and the market does not guarantee that any of these stocks will come back.
Still, upon closer examination of a company's business and financials, some stocks show the potential to not only come back but also further reward their long-term investors. Due to robust ecosystems and lower prices, stocks like Pinterest (PINS 1.02%) and Airbnb (ABNB 1.03%) could orchestrate such recoveries.
Pinterest attracted a massive user base by capitalizing on people's passions. Users can "pin" information or images based on what they like. The company uses this information to show promoted pins, or ads that could generate revenue.
As with many e-commerce-related companies, usage fell as consumers emerged from lockdowns. Revenue in the third quarter grew 8% to $685 million, well below the 43% growth in the year-ago quarter. And Q3's $65 million quarterly loss stands in contrast to the $94 million profit in the prior 12 months.
Consequently, the stock cratered. Pinterest has fallen by about 50% over the past year and more than 70% from its all-time high in early 2021.
However, during that time, co-founder Ben Silbermann handed the reins to Bill Ready, who once led the commerce, payments, and next billion users segment at Alphabet's Google.
Management hired Ready in June to grow its user base and turn Pinterest into a more e-commerce-oriented site. So far, the Q3 average revenue per user (ARPU), which held up as the lockdowns ended, increased by 1% versus the previous quarter to $1.56. Management hopes e-commerce can take ARPU much higher over time.
Ready may have also helped reverse the monthly active user (MAU) decline. In Q1, MAUs had fallen by 9% over the previous 12 months. As of Q3, MAUs have grown 1% year over year to 445 million.
Due to the aforementioned losses, the price-to-earnings (P/E) ratio does not apply. But the price-to-sales (P/S) ratio now stands at 6, thanks to the drop in the stock. If the company can continue to boost MAUs and especially ARPU, that multiple may help investors see Pinterest as a screaming buy.
Airbnb
Airbnb is not the only site for short-term vacation rentals. Nonetheless, it has prospered by utilizing its competitive advantage. First, it has developed a high level of name recognition, almost to the point that many people refer to any vacation rental as an "Airbnb."
Such recognition tends to attract new properties to the platform. Unlike a hotel, it does not have to spend on construction to attract new properties, which means it can drive revenue more quickly when demand rises.
Moreover, it has made considerable investments in artificial intelligence and machine learning. This means it can enhance personalization and product design through data science, a factor that improves user experiences. Through this technology, Airbnb booked about 100 million nights and experiences on the site during Q3, a 25% increase year over year.
That boosted revenue by 29% over the period to $2.9 billion. Also, net income rose 46% to just over $1.2 billion. The company held the line on cost and expense growth and increased its income from interest and unrealized gains from investments and currencies.
But despite that increase, the internet and direct marketing retail stock has continued to fall. It has lost around half of its value over the past 12 months.
Also, its P/S ratio has fallen to 8. That is still well above Expedia's at just over one times sales. Moreover, its P/E ratio of 42 indicates that this is an expensive stock.
However, since it generates a profit and continues to grow at a steady clip, that could limit the downside. As the company continues to attract more properties and tenants, it should boost the perception that stock declines are buying opportunities rather than signs of a compromised business model.
