After the worst year for the stock market since the 2008 market crash, some stocks have rebounded in 2023.
Airbnb (ABNB -1.52%) has climbed 49% since the new year began, as its recent financial results continue to speak to the rental platform's long-term growth potential. Meanwhile, Monday.com (MNDY 0.33%) is experiencing robust growth for its workflow management software platform. After a sharp fall in 2022, the stock has rebounded 26% year to date. These stocks are soundly outperforming the S&P 500 index this year.
Focusing on stocks with the best relative performance compared to the major indexes can be an effective strategy in identifying long-term winners. Here's why investors can still expect these stocks to deliver wealth-building gains from current share price levels.
Airbnb
Airbnb continues to impress investors with its recovery coming out of the pandemic. The stock collapsed last year over concerns about the health of the economy, and whether rising inflation would cause travelers to rethink their plans.
As it turns out, there is a greater appetite for travel heading into 2023 than Wall Street anticipated. Airbnb reported strong demand across the business, most notably for urban rentals, as more people resume travel to large cities. The company's revenue rose 24% year over year in the fourth quarter, up 72% from the same quarter three years ago.
As demand increased last year, supply of listings also grew, which is the beauty of Airbnb's business model. Large hotel companies must invest capital to expand room capacity, but Airbnb relies on independent hosts listing space for rent. Airbnb and the hosts earn fees as guests book rooms, leading to a lucrative stream of revenue for both parties. It's a win-win.
Airbnb spends significantly less capital than Marriott International and Hyatt Hotels. This is why Airbnb's profit margin is so wide, ending 2022 at a healthy 23% of revenue, and it could continue to improve considering Airbnb's margin has been steadily expanded coming out of the pandemic
Data by YCharts
Airbnb's improving profit margin should fuel investment in new features to make it easier for hosts to list their properties on the platform, where increasing the available listings (or supply) on the platform is a top priority. This is because travelers will naturally gravitate to the platform that offers the greatest variety of choices. Airbnb already has a head start, given its massive active listing count of 6.6 million, an increase of over 900,000 year over year, excluding China.
Airbnb is just tapping into its long-term potential. Consider that estimates for travel spending in the U.S. alone is expected to increase by almost $200 billion to reach $1.2 trillion by 2026, according to the U.S. Travel Association. This is an enormous tailwind to fuel Airbnb's business (and stock) higher for growth investors.
Monday.com
Monday.com is another market leader investors should consider for their nest egg. Monday's Work OS lets companies bring multiple teams, applications, and data onto a single software platform, making it much easier to complete mission-critical projects. Demand has been quite strong, helping fourth-quarter revenue rise 57% year over year, while revenue grew 68% for the full year.
Some investors might have been disappointed with management's forecast that calls for first-quarter revenue to grow between 42% to 44% over the year-ago quarter, which reflects a deceleration in revenue growth. This can sometimes pressure expensive growth stocks, but after Monday's 60% share price haircut last year, the market is already pricing in lower growth expectations.
However, while management reported seeing some of its larger customers pull back on spending in the fourth quarter, Monday's current growth is quite strong in the context of a weak environment for business spending.
One key performance indicator that signals a buying opportunity is Monday's solid net dollar retention rate that remained steady at over 120% in the last quarter. This means businesses are continuing to spend on additional services after initially signing up.
Even more important is the success of Monday's customer relationship management (CRM) product, which has so far has only been offered to new customers. Despite competition from larger companies such as Salesforce, Monday ended 2022 with more than 2,400 CRM accounts. Management said now the focus will be rolling out the CRM product to more of its existing customers and investing in new features and functionality.
Even at a relatively high price-to-sales (P/S) ratio of 13.5, many investors are still underestimating Monday's potential to grow amid a highly competitive landscape for project management software.
What's most impressive is that Monday is increasing sales at robust rates while also improving profitability, which justifies its high P/S multiple. The company expects to post a negative operating margin of 5% in fiscal 2023 -- an improvement over last year's negative 9% margin.
All said, I believe Monday.com has the makings of a monster growth tech stock over the next decade.
