1 Surefire Growth Stock That Could Turn $10,000 Into $40,000 in 10 Years

The buy-and-hold approach to investing in stocks has its perks. It requires less investment in time than day trading and also results in lower fees and tax advantages. And provided investors buy shares of great companies and hold them even through downturns, the long-term returns this strategy can generate are impressive.

But with hundreds of companies to choose from, separating the wheat from the chaff can sometimes be challenging. With that said, let's consider one excellent company that can deliver market-beating returns in the next decade: Airbnb (ABNB 0.75%).

Here's why this stock can turn $10,000 into $40,000 in the next 10 years, amounting to a compound annual growth rate (CAGR) of 14.9%. 

A massive market opportunity ahead

Airbnb runs a platform that offers home rentals and experiences. As long as people travel and seek activities while they're away from home, there will be a need for the kinds of services Airbnb offers. Of course, the company competes with traditional hotels. But it arguably has an edge over them. Hotels tend to have a less private and homey feel to them.

They also don't offer basic amenities people are used to having access to in their own homes. Airbnb's rentals can offer all these things and more. And given the massive size of the travel industry, the company can grow its revenue and earnings for years. Airbnb once estimated its total addressable market (TAM) to be worth $3.4 trillion.

Is that an overestimate? Maybe, but note that the hotel and resort industry was valued at $1.52 trillion in 2019 before it declined because of the pandemic. It has yet to recover fully. Airbnb's estimates include short-term stays, long-term stays of 28 days or more, and experiences. Even assuming the company's actual TAM is 10% of its estimate, or $340 billion, that still leaves massive growth ahead.

Last year, Airbnb's revenue of $8.4 billion jumped by 40% year over year. That doesn't even tell the whole story: The company was negatively affected by fluctuations in currency exchange rates. Airbnb's revenue jumped by 46% year over in constant currency. The company's net income came in at $1.9 billion, much better than the net loss of $352 million reported in 2021.

Let's assume Airbnb can grab 1% of its estimated TAM in the next 10 years; that's $34 billion. Given the company's revenue of $8.4 billion in 2022, that would imply a compound annual growth rate of 15% through this period. So it looks as if Airbnb has plenty of space to exploit in the next decade and beyond, but it won't be the only company looking to pounce on these opportunities.

Fortunately, there is one reason it can be one of the winners. 

Airbnb's competitive advantage 

Airbnb competes with several notable tech companies, such as Expedia Group, which owns Vrbo, a vacation rental service that goes up directly against Airbnb. Other players in this field include Booking Holdings. But investors should have confidence in Airbnb despite the competition. First, this massive market can accommodate multiple winners. The mere presence of competitors is not a deal-breaker: Very few companies benefit from monopolies.

Second, Airbnb already has a large ecosystem, with 4 million hosts and 6.6 million active listings as of the end of 2022. The company's platform benefits from the flywheel effect, which means its value increases with usage. Thinking of it from the perspective of hosts and guests, it makes sense. The former want to reach as broad a potential customer base as possible to maximize their earnings, while the latter want as many rental options as possible to choose from.

The company can continue growing its hosts and guests thanks to its platform's flywheel effect. However, some would argue there are problems with the company. A recent short report sank Airbnb's stock when pointing out some issues with the company -- most notably, some horror stories from Airbnb's guests that have become popular on social media, thereby damaging the company's image, and the fact that many professional hosts on Airbnb are launching their own competing platforms.

These issues have yet to significantly affect Airbnb, as the company's rapid growth last year shows. Nor will they be severe problems in the long run, at least in my view. Airbnb has facilitated 1.4 billion guest arrivals since its founding in 2007. That's a massive number, and it's not surprising that at least a few horror stories have emerged from that many transactions.

This doesn't come close to proving a systemic problem with Airbnb, especially if the evidence comes from one-sided sources on social media: We all know how allegations can get blown out of proportion in this highly polarizing area of public discourse. Perhaps the exception to that are the surprise fees that even management has talked about.

Guests want more transparency regarding how much money they will end up paying, to which end the company rolled out a feature that allows customers to see a breakdown of all the charges and fees (minus taxes) included in their final bill. Further, while professional hosts might be creating their own platforms, most won't want to leave Airbnb and the massive ecosystem of guests who routinely seek travel arrangements there.

Doing so would mean forfeiting quite a lot of business. Hosts can, after all, operate both on Airbnb and their own websites. 

The future is bright 

The demand for Airbnb's services might fluctuate based on economic conditions. But the company has such a massive market opportunity that it should continue growing its revenue and earnings at a good clip in the next 10 years while also increasing the number of hosts and guests on its platform thanks to its flywheel effect. These factors can help Airbnb's stock price register a CAGR of 14.9% through the next decade, allowing it to turn $10,000 to $40,000 in this period. That's why investors should buy the company's shares today.