The bear market has been dragging on for a year and a half now, and while that may be discouraging, long-term investors know that a sell-off like the current one represents a buying opportunity.
Even as major benchmarks have bounced off their lows, a number of growth stocks are still down substantially from their previous highs. If you're looking to capitalize on the bear market, keep reading to see why Netflix (NFLX -3.92%) and Airbnb (ABNB 1.17%) are ripe for buying right now.
Netflix's stock has rarely been cheaper
Parkev Tatevosian (Netflix): With Netflix stock down 53% off its highs, investors may not have an opportunity to buy it at such a discount again. The streaming pioneer faced a wave of competition, the likes of which it had never seen in the early parts of the pandemic. Demand for in-home entertainment has soared, so rivals thought it was the best time to roll out streaming services aggressively. Admittedly, the competition was damaging to Netflix, as competition usually is, but the intensity is now easing, making it an excellent time to consider buying Netflix stock.
Indeed, rivals rolled out streaming services at introductory prices to attract subscribers early on. However, the focus has shifted from subscriber growth to profitability, and the change in strategy is noticeable. Price increases, cost cuts, and smaller content budgets have become commonplace, making for better industry profitability. While Netflix's operating income fell from $6.2 billion in 2021 to $5.6 billion in 2022, it would not surprise me to see profits rise in 2023.
NFLX PE Ratio (Forward 1y) data by YCharts
Netflix has increased prices, cracked down on account sharing, and decreased content budget growth. To make the case for investing in Netflix more attractive, the stock is trading at a relatively cheap valuation. With the shares trading at a forward price-to-earnings ratio of 22, investors have an opportunity to buy Netflix stock at an attractive discount.
A travel disruptor on sale
Jeremy Bowman (Airbnb): Airbnb has turned the travel industry upside down with its disruptive home-sharing marketplace, and the company continues to grow at a strong pace even as the reopening tailwinds in the travel industry seem to be fading. However, the stock has been volatile since its 2020 IPO and is now down 51% from its peak.
Investors sold Airbnb stock off earlier this month because they were displeased with its guidance for the second quarter, but a closer look shows that response looks short-sighted. Even as the company is lapping the travel boom that followed the peak of the omicron variant in Q1 of last year, it expects revenue to grow 12%-16% and sees flat adjusted EBITDA compared to the period a year ago due to an increase in sales and marketing spending.
While that might sound bad, investors should still see a solid increase in earnings per share. That's because the company is earning significant interest income thanks to its business model that allows it to hold customer funds in between bookings and stays. In the first quarter, the company earned $146 million in interest income, and that figure could be even higher in Q2.
Additionally, Airbnb just added a slew of new product updates that should help quell the complaints about the service and shows that the company still has a lot of potential to improve and expand its business. Among those new changes was the rollout of transparent pricing to all users, showing extra fees like cleaning up front so it's not a surprise at the end.
Airbnb also relaunched its private rooms product, now called Airbnb Rooms, putting an emphasis on its budget offering and its ability to connect guests with hosts. Over the long term, the company sees an opportunity to expand its marketplace beyond travel to adjacent and related activities and products.
As a home-sharing marketplace, Airbnb has a number of competitive advantages over traditional hotels. With travel demand expected to be strong over the coming years, it should continue to deliver steady growth.
