The tech-heavy Nasdaq Composite was the worst-performing major U.S. market index in 2022 amid a bear market that lasted for much of the year. But investors have returned to this index again, as evidenced by its strong performance since 2023 started -- and with good reason.
The Nasdaq is home to plenty of companies that generate strong financial results, have excellent long-term prospects, and benefit from solid competitive edges. Let's look at two companies that fit that description well: Airbnb (ABNB 0.99%) and Etsy (ETSY 0.58%).
1. Airbnb
Airbnb is a leading home-rental platform with an ecosystem of more than 4 million hosts. One of the company's selling points is that guests often prefer a "homey" environment that offers more privacy and amenities than traditional hotels do.
That's particularly useful for stays of 28 days or more, which, as of the third quarter, represented 20% of Airbnb's nights booked, a percentage that was flat year over year. Stays of seven days or more represented 45% of Airbnb's bookings during the period.
Why does this matter? The pandemic helped usher in a new era of more people working remotely, and many are on the road while doing so. These guests need accommodations, and Airbnb is happy to oblige. Long-term stays have been growing rapidly in the past few quarters, and it's a category that represents a significant opportunity for the company over the long run.
But the growth prospects extend beyond that. Airbnb once estimated its total addressable market (TAM) to be worth about $3.4 trillion. If that seems too high, remember that it offers both accommodations and experiences through its platform. And even if the company's actual TAM is a mere 10% of this estimate, it has barely scratched the surface.
Revenue in the third quarter came in at $2.9 billion, 29% higher than the year-ago period. Net income of $1.2 billion increased 46% year over year, making it the company's most profitable quarter ever. Airbnb's results have rebounded since the slowdown it experienced during the pandemic, when travel activity practically stopped. But the company's shares have yet to bounce back, and that's good news for bargain seekers.
Given the opportunities ahead, we can expect Airbnb's revenue and earnings to continue increasing, especially with the company's competitive advantage. The value of its platform rises as more people use it, with more hosts attracting more guests, and vice versa.
This powerful network effect should allow Airbnb to grow its number of hosts, guests, and nights and experiences booked for a long time to come, which is one of the keys to long-term success for the company.
2. Etsy
Etsy is just one e-commerce player among the many looking to profit from this increasingly lucrative industry. But the tech company has a secret weapon: its focus on handmade, vintage, and rare items.
In one survey, Etsy found that 87% of buyers on its platforms say there are items on Etsy they can't find elsewhere else, while 72% say there is no website or store similar to Etsy.
That means most of these buyers will continue to turn to Etsy when looking for rare goods. No doubt, many of them will tell friends or family members looking for similar items. Word of mouth remains one of the best forms of advertising. Just like Airbnb, Etsy's platform has a network effect built around the fact that lovers of rare and vintage items will continue to turn to the platform.
Etsy's business has slowed since its peak during the pandemic when people were forced to stay home and shop more online. Even so, it continues to deliver decent financial results. Revenue increased by 11.7% year over year in the third quarter to $594.5 million.
The company reported a net loss of $963.1 million during the period, compared to the net income of $89.9 million recorded in the prior-year quarter. But that was due to a $1 billion non-cash impairment charge related to acquisitions (which means the company overpaid for these transactions). That isn't ideal, but it is nice to know the company's net loss was not due to its day-to-day operations. Etsy has captured less than 3% of its $466 billion estimated online TAM.
Once comparisons to the pandemic years cease, the company's revenue growth should increase. Etsy should address the issues with the bottom line, too, once it no longer has to record massive impairment charges. Stronger revenue and earnings should serve Etsy and its shareholders well this year and beyond.
