People like to give Reddit stocks a bad rap. Sometimes -- well, probably most of the time -- these concerns have merit. Many of the stocks discussed on the social media platform are just meme stocks with tons of serious fundamental issues or ones associated with the latest hyped-up topic in financial markets.
For example, C3.ai has become one of the most-discussed stocks on the Wall Street Bets forum in recent weeks, mainly due to the fact there is a lot of hype for artificial intelligence (AI) at the moment, and it has the acronym in its name.
But not all Reddit stocks are just fluff. Here are two Reddit stocks to buy and hold for many years.
1. Airbnb: Changing the way we travel and live
Airbnb (ABNB 1.17%) revolutionized the travel industry in 2008 when it launched its home-sharing marketplace, allowing individuals and businesses to post all sorts of shelter arrangements online. Since then, it has continued to grow, unlocking new liquidity for travelers around the globe. In 2022, it processed $63.2 billion in gross booking value (GBV), up 35% from 2021, and facilitated close to 400 million nights and experiences booked through its platform.
Coming out of the pandemic, Airbnb has benefited greatly from the tourism and travel recovery around the globe. And it has been doing so with fantastic efficiency. In 2022, Airbnb's employee head count was down 5%, while revenue was up 75%. Getting more out of your employees and reducing bloat can have a huge effect on profit margins.
In Q4 of 2022, Airbnb's net income was $319 for a margin of 17%. In 2019, it had a net loss of $352 million in the fourth quarter for a margin of -32%.
Over the long term, I think Airbnb can continue to gain share within its key markets like short- and long-term rentals, as it has for the past decade-plus. With increased expense efficiency as the platform scales up over its fixed cost base, this should lead to margin expansion as well.
At a market cap of $88 billion, shares might look expensive today, with only $1.9 billion in net income last year. But for those looking to buy and hold for many years, Airbnb can be a good bet at today's prices.
2. Alphabet: Can it back up the AI hype?
Alphabet (GOOG 0.74%) (GOOGL 0.55%) -- the parent company of Google -- is going through some perceived headwinds right now, with one of its few competitors, Microsoft, trying to revive its Bing search product. Microsoft has invested $10 billion into OpenAI, embedded a new artificial intelligence chatbot into its Bing search results, and is trying to push a revamped browser called Microsoft Edge to consumers. Investors have become nervous about this, sending Alphabet shares down in recent weeks.
I believe these fears are misguided and give investors an opportunity to purchase Alphabet shares on the cheap. Google has faced many competitors over the years, including the original Bing, and has proven time and time again it can retain market share due to its plethora of free products and the platform advantages it has obtained by growing the Chrome browser and Android. It also has been investing in AI for many years, especially through its research lab DeepMind, which was acquired nearly 10 years ago. I have little doubt that Google can copy these AI chatbots soon, which will lead to few (if any) market share losses to Microsoft.
Alphabet is not just Google Search, either. The company owns YouTube, the largest video application in the world with over 2 billion active users. Last quarter, YouTube advertising revenue was roughly $8 billion, up from $4.7 billion in 2019. Advertising revenue has slowed at YouTube recently, but with a dominant presence among younger people and minimal competition, YouTube has a path to growth for many years into the future.
In addition, Google Cloud, Alphabet's cloud infrastructure division, continues to put up solid growth numbers and hit $7.3 billion in sales last quarter. While not profitable yet, Google Cloud is one of the leaders in the gigantic cloud market that should lead to strong revenue growth for years to come.
At a current price-to-earnings ratio (P/E) of just 21, which is below the S&P 500's average, Alphabet stock looks like a bargain right now if you plan to hold it for multiple years.
