On the surface, it wouldn't appear that short-term rental platform Airbnb (ABNB 0.10%) had anything to do with online-learning company Udemy (UDMY -1.29%), stock-photography business Shutterstock (SSTK -1.38%), or mobile-gaming platform Roblox (RBLX 1.60%). However, they're surprisingly alike in their business models.
Airbnb's business model is inherently attractive, and it's why companies like Udemy, Shutterstock, and Roblox, remain potential stock buys.
Here's why Airbnb is a great business
Go to Airbnb's platform, and you'll be inundated with millions of listings for places to stay and things to do. And yet, Airbnb doesn't own them. All Airbnb really owns is its name. And with that name, it's earned $1.2 billion in net income in just the last 12 months.
Anyone can add their property to Airbnb's platform and make money when someone stays there. Onboarding is easy. But anyone thinking of becoming an Airbnb host needs to carefully consider the details. Running a short-term rental property is a job filled with responsibilities, expenses, and competition. It's not something to take lightly, and it's possible to lose money.
Airbnb's job looks easy, by comparison. As of the third quarter of 2022, 90% of traffic to its platform from bookers was organic -- the company didn't pay to get them there. Its brand is already top-of-mind for travelers, and third-party hosts provide the inventory of travel options.
This is why Airbnb is a high profit-margin business, as demonstrated by the chart below of gross margin and net margin.
ABNB Gross Profit Margin data by YCharts.
This marketplace business model is inherently attractive, but that doesn't necessarily make all marketplace businesses good investments. For Airbnb stock, I believe it will be over the long term. But management will need to use its riches prudently to adequately protect its business from competition, grow overall adoption, and increase shareholder value. And the company simply hasn't been public long enough to develop a definitive track record for these things yet. In other words, marketplaces are good businesses to be in. But management teams still have to execute.
Now let's turn our attention to Roblox, Shutterstock, and Udemy, which share this marketplace business model with Airbnb. I'll share my opinion of how investable they are right now.
1. Roblox
Roblox only went public in 2021, which may lead some to wrongly assume the platform is still quite small. In reality, the platform has 61.5 million daily active users (DAUs) as of the end of December. It also had over 29 million experiences (not all are video games in the traditional sense) for its users as of the end of 2021. And these virtual experiences were created by Roblox's robust community of thousands of third-party developers.
For Roblox, it's certainly proving to be a resilient business. While some believed its recent growth was only temporarily fueled by the pandemic, the company's DAUs in December hit an all-time high. And users are still spending a healthy amount of time on the platform, as well as spending money. Moreover, the business generates positive cash from operations.
However, Roblox is a stock I'd avoid for now because of its modest growth rate and uncomfortably high stock-based employee compensation.
For growth, Roblox's December metrics showed stagnation in average bookings per DAU -- think of this as money deposited on the platform. Eventually, DAU growth could stagnate, given the size of its user base already. And unless the company can earn more per DAU, then it might not grow revenue enough to generate market-beating returns.
All of the companies in this article use stock-based compensation to reward employees. However, Roblox has incurred $420 million in stock-based compensation charges through the first three quarters of 2022 alone, or more than 25% of revenue, which is quite high and robbed the company of profitability. And looking at its filings, it could pay out around $460 million annually for the next three years, which will come at a cost to shareholders.
2. Shutterstock
Shutterstock built its marketplace business thanks to its community of photographers, videographers, and artists. And now, with the surge in popularity of images generated by artificial intelligence (AI), some fear that it's doomed to be disrupted. I'm more optimistic and it's why the stock is high on my watch list.
Content creators are upset that AI models allegedly use their real images to create the AI-generated images. That's why Shutterstock partnered with OpenAI to bring this AI-generated image trend on its platform. By partnering with AI, the company can attract users who want access to these kinds of images. The AI pulls from images on Shutterstock's platform, allowing the original creators to be compensated. By making the proactive move of partnering with AI, Shutterstock is doing its best to meet the evolving needs of both buyers and sellers on its platform, which is potentially good for business long term.
Rather than buying it, I'm only watching Shutterstock stock today because its growth has slowed significantly. Revenue for the first three quarters of 2022 was only up 7% from the comparable period of 2021. And it's unclear whether recent acquisitions or platform enhancements will reinvigorate growth.
That said, Shutterstock is profitable on a net-income basis and pays a small, but growing, dividend that yields about 1.4%. As long as this remains the case, I find it unlikely shareholders will lose money. But growth probably needs to pick back up for this investment to beat the market.
3. Udemy
Finally, Udemy is another marketplace business that's inherently attractive. Whereas many education-technology companies strive to bring in renowned professors and desire to offer accredited degrees and certificates, Udemy forged a different path that gives it a competitive advantage.
Udemy doesn't offer degrees, and its courses can be taught by anyone with knowledge. By lowering the barrier to entry in this way, the company amassed an enormous content library. The platform offers over 213,000 courses taught by more than 74,000 instructors, with options in over 75 languages. I have no doubt that some of these courses and instructors are subpar, but many are great for learning a skill without the fuss of a degree.
This is where the investment thesis gets interesting for Udemy. The company curates high-quality content and offers it to businesses as a subscription product. And this part of the business is growing at a head-turning pace. Through the first three quarters of 2022, revenue for Udemy's enterprise segment generated revenue of $223 million, up 73% from the comparable period of 2021. Moreover, Udemy's annual recurring revenue sat at an all-time high of $350 million, as of the third quarter of 2022, giving the company a high degree of visibility into the future of the business.
Speaking of the future, Udemy's chairman and CEO is retiring. To replace him, the company is promoting Greg Brown, the head of its enterprise segment. This clearly signals that Udemy is going all-in on this enterprise subscription strategy. And given the company's high growth rate, that looks like the right decision.
Airbnb is the perfect example of why marketplace businesses are attractive. And Roblox, Shutterstock, and Udemy remind me of Airbnb in that regard. But of these three, Udemy is the stock I would buy today. I believe it's built a large library to accelerate growth in the coming years, which could lead to market-beating performance.
