The stock market is maintaining most of its gains this year, but after rising through the first six months, it appears to have plateaued. There are several ways to look at this, but the bottom line is that investor confidence can only go so far when inflation is still rampant, and interest rates are at a 22-year high.
Many individual stocks are in a similar position, holding onto some massive price jumps this year but not going any further. It might take some big news to move the markets significantly in either direction, and that news is likely to be changes in interest rates.
Still, there are some excellent, young companies that stand to continue growing regardless of near-term interest rate moves. Both Airbnb (ABNB 0.75%) and Roku (ROKU -10.29%) have promising prospects ahead. Let's see why they could make sizzling-hot additions to your portfolio.
1. Airbnb: Not your average travel company
Airbnb is a true disruptor, offering more than just another way to book your next vacation. It allows customers to rent apartments in locations they would never have been able to visit before, such as out-of-the-way small towns and specialized, niche areas that are destination spots, both places where the hotel industry could never turn a profit.
That gives it exposure to a huge target market of customers who are looking for everything from cheaper accommodations and in-town residences to adventurous locations and long-term stays. It benefits from offering all of the above and more, and it does this while operating an agile, asset-light platform that doesn't require huge capital outlay or keeping heavy inventory on its books.
Airbnb is intensely focused on customer feedback, and it has been responsive to criticism with continuous adjustments to its model. For example, customers used to have to pay completely up front, but that could set people back thousands of dollars at booking, which could be months in advance. It now offers several payment plan options as well as buy now, pay later plans through Klarna.
It also recently gave hosts the ability to offer better pricing for longer stays, and it introduced a new "dial" interface to choose the length of stay, which has already resulted in accelerated bookings for longer stays. That was part of a summer release with 50 new features and upgrades, many of which were focused on discounting and pricing tools.
Yes, growth has slowed in the aftermath of triple-digit increases, but it's still double-digit despite inflation and economic volatility. There are also so many places Airbnb can go, and it's carefully launching new products and services. "We have some big ideas for where to take Airbnb next," management said, "and we're building the foundational capabilities for new products and services that we plan to launch in the years to come."
With increasing profits and free cash flow, it has the funds to generate and implement new ideas. Expect Airbnb to keep growing well into the future.
2. Roku: The differentiated streaming model
With all of the streaming companies operating today, it might come as a surprise that streaming is still far from a majority of viewing hours. Old habits die hard, and viewers continue to cord-cut, but there are plenty of viewers out there who have yet to purchase a streaming subscription or device. Leaders like Netflix and Disney will never reach a substantial portion of traditional TV viewers who won't spring for a $6.99 subscription (or more), with or without advertisements.
Some of those, though, might switch over to totally free streaming like Roku's channels, which feature content from many top studios and networks. Many of its channels are on-demand, but with ads, so it's like watching regular TV but better.
What differentiates Roku from almost any other streaming stock is that it makes the hardware to stream content. Even more, it's the top-selling streaming device company in the U.S. and growing internationally. Device sales are a revenue driver, but the main role they play is bringing viewers into the Roku ecosystem. That sets them up to engage with Roku channels and drives higher viewing hours, and that translates into higher ad dollars.
Device revenue and platform revenue, or what it calls the ad segment, have both been gaining momentum again after each had its moment of decline. Revenue increased 11% over last year in the second quarter with increases in both segments.
Profits aren't on the short-term horizon, but Roku did post net profits when revenue soared early in the pandemic. Management is guiding for positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the full year 2024 and to improve after. That's a long way off, but it should demonstrate higher revenue when the economy recovers, and that should lead to profitability down the line.
Roku has a unique and compelling streaming model, and it has many years of future growth ahead.
