In many ways, Uber (UBER -0.38%) and Airbnb (ABNB 0.75%) are mirror images of each other.
Both companies were founded around the same time, in 2007 to 2009, as disruptors of massive industries made possible by the smartphone.
Uber aimed to disrupt the traditional taxi industry and broader transportation sector, while Airbnb challenged hotels, creating a new category of accommodations now known as home-sharing.
As stocks and businesses, both faced challenges during the pandemic, but they have gone in different paths. Uber just reported its first-ever quarter of profitability according to generally accepted accounting principles (GAAP), and the stock only recently topped its $45 initial public offering (IPO) price when it debuted in 2019.
Airbnb, on the other hand, has been profitable since shortly after it laid off a quarter of its staff during the pandemic, and the company has taken a much more efficient approach toward its business.
Let's take a look at where each company is today to see which stock is the better buy.
Image source: Getty Images.
Uber finally gets out of the red
Uber was founded in 2009 but finally recorded its first GAAP operating profit as a publicly traded company in the second quarter of this year. It posted $326 million in operating income.
That achievement was the result of years of efforts to restrain spending on driver and rider incentives, sell off or close businesses in countries where it wasn't the No. 1 or No. 2 operator, and focus on efficient growth.
Based on its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free-cash-flow results, the company looks even more profitable, with margins of 10% or better.
However, in spite of the strong bottom-line performance, the stock actually sold off on the news as investors fretted over slowing top-line growth. Revenue in the quarter grew just 14%, a sign that the pandemic recovery tailwinds are fading, meaning the company will have to find a way to boost profitability or reaccelerate revenue growth in order to continue to drive the stock higher, especially after it's already doubled this year.
Can Airbnb keep going?
Airbnb's revenue growth was slightly better than Uber's, up 18% to $2.5 billion
Like with Uber, the rebound in the travel sector seems to be fading, and that means that investors may have to adjust their growth expectations going forward. Additionally, Airbnb has been experiencing a brand backlash on social media over things like hidden cleaning fees and chore lists, which could impact the business over the long term, though there isn't yet evidence of a significant impact in the numbers.
One key advantage Airbnb has is it's significantly more profitable on an adjusted EBITDA and free-cash-flow basis. In its last four quarters, it had an adjusted EBITDA margin of 33.5%, ahead of Uber's at 10% in Q2, and Airbnb's free-cash-flow margin was 43% over the last four quarters, a product of the company's asset-light business model, relatively little direct competition, and its ability to collect funds ahead of time and earn interest on the funds it holds between bookings and stays.
Those free-cash-flow margins show how powerful Airbnb's business model is.
Which is the better buy?
Airbnb and Uber have similar disruptive potential and growth rates, while Airbnb seems to be the winner based on margins and historical profitability.
But what about valuation? Perhaps the best way to compare the two stocks is on an adjusted EBITDA multiple since Uber only just became profitable on a GAAP basis.
Uber, with a market cap of $94.4 billion, is currently valued at 33 times its trailing adjusted EBITDA of $2.86 billion, while Airbnb, with a similar market cap of $88.8 billion, has a trailing adjusted EBITDA multiple of 29.2 with EBITDA of $3.04 billion over the last four quarters.
The two companies have similar metrics in a number of categories, including market cap, revenue growth, and adjusted EBITDA. However, Airbnb has the edge in free cash flow and profit margins and has been profitable for longer.
While Uber should be commended for its steps to profitability, Airbnb edges it out in this test of which one is the better stock to buy today. Both disruptors have a lot of growth potential, but Airbnb is the better buy.
