If you're an industry disruptor, 2022 has probably been a bad year for you.
Take Airbnb (ABNB 1.09%) and Roku (ROKU -0.40%). Both companies are disrupting massive industries -- hotels and television, respectively. Their two stocks were soaring as we came into 2022, but since then, they've gotten crushed, underperforming the S&P 500 significantly year to date.
However, both of these companies continue to disrupt their respective industries, and both stocks have a lot of upside potential from their current prices. Here's why shares of these two growth stocks may never be this cheap again.
1. Airbnb: Changing the way we travel
Airbnb is different from most growth stocks in the market. First, it struggled in the early stages of the pandemic, but it has thrived in the economic reopening. Through the first three quarters of 2022, its revenue was up 46% year over year to $6.5 billion.
Another thing that differentiates Airbnb from its growth stock peers is that it's highly profitable. It laid off a quarter of its employees early in the pandemic, and profitability soared as the travel market rebounded. In the third quarter -- its peak season -- Airbnb's profit margin was 42%, and over the last four quarters, its profit margin was 20%. Those metrics should improve as the company grows.
So Airbnb is growing fast and is highly profitable, but its stock is also reasonably priced. Currently, Airbnb trades at a price-to-earnings ratio of just 41, only a bit more expensive than many slow-growth stocks in the consumer staples sector.
Investors seem to be pricing the stock as if they think the rebound in the travel market will quickly fizzle, and Airbnb's fourth-quarter guidance gave investors pause as it called for revenue growth of 17% to 23%. The stock sold off following the earnings report.
While the company's growth rate is likely to moderate from the 46% it has achieved so far this year, Airbnb looks well-positioned to gain market share in the travel industry as trends like remote work continue to drive a shift toward home-sharing. Airbnb is also better equipped to handle recessions than its hotel-operating rivals because its inventory can more rapidly adjust to changes in demand. For example, single-room listings jumped by 31% in the most recent quarter as people around the world look for ways to earn some extra money to help them cope with high inflation.
With its cheap valuation and long-term growth potential, Airbnb stock looks well-positioned to soar when market sentiment shifts.
2. Roku: The streaming platform faces a growth slowdown
In contrast to Airbnb, Roku stock skyrocketed during the earlier phases of the pandemic as demand for streaming video services surged. However, it began to slide in the summer of 2021, and 2022 brought something of a reckoning for the company.
Revenue growth slowed as the advertising demand pulled back, a trend across the industry that is hitting digital ad giants like Alphabet and Meta Platforms as well. At the same time, Roku ramped up spending in sales and marketing, research and development, and other areas. As a result, after delivering solid profits in 2021, it posted wide losses this year.
However, like with Airbnb, the long-term story for Roku remains intact. It's the leading streaming platform in the U.S. thanks to its stand-alone devices and its partnerships with television manufacturers. In the third quarter, it was once again the No. 1-selling smart TV operating system in the U.S., and it's also making headway in international markets. It recently launched in Germany and Australia, and it's now the No. 2 smart TV operating system in Mexico.
Despite the advertising market headwinds, Roku's user base continues to grow. In the third quarter, active accounts rose by 16% year over year to 65.4 million, and hours streamed increased by 21% to 21.9 billion. Additionally, the amount of time people spent watching The Roku Channel nearly doubled year over year last quarter.
The connected TV market also seems to be at a tipping point as Disney+ and Netflix are both launching their own ad-based tiers. That should be a long-term earnings driver for Roku, as it typically takes 30% of the ad inventory from streaming services on its platform.
Based on 2021's earnings per share of $1.71, Roku trades at a price-to-earnings ratio of just 31. The company won't get back to that profitability level for a while, but it is more than capable of doing it over time, especially as it is arguably squandering resources on questionable pursuits like smart home devices and even The Roku Channel, which makes it a direct competitor with its streaming partners.
Roku has a powerful position in the fast-growing connected TV ad market, and that should pay off when advertising spending rebounds again in the next bull market. With Roku's market cap now at less than $8 billion, the stock looks like a steal.
