In June, the S&P 500 closed 20% up from its most recent low, marking the start of a new bull market for many. But with fears of a coming recession mounting, the index hasn't performed particularly well since. Whether or not that was the start of a sustained bull run, investors can rest assured that the market will eventually experience one, especially after the downturn in 2022.
And since bull markets tend to last longer than bear ones, it pays to prepare by buying shares of companies that can ride a bull run and deliver outsized returns. Here are two excellent candidates: Airbnb (ABNB 0.75%) and Pinterest (PINS 4.04%).
1. Airbnb
Airbnb helps facilitate the favorite activity of many people: traveling. The company runs a platform where people offering vacation rentals can connect with those seeking places to stay on the move. Airbnb also provides experiences through its platform.
The company has performed well on the stock market this year on the back of solid financial results. In the second quarter, Airbnb's revenue of $2.5 billion increased by 18% year over year.
Some would complain that Airbnb's revenue growth rates have declined recently, a true statement.
ABNB Revenue (Quarterly YoY Growth) data by YCharts.
But that's because the travel industry experienced a bit of a boom that has now largely died down once government-imposed, pandemic-related lockdowns were lifted. Importantly, though, Airbnb's revenue is substantially higher than its pre-pandemic levels. Meanwhile, the company's Q2 net income of $650 million soared by 71.5% year over year.
A recession could harm Airbnb's business in the short run but should do little to harm the company's long-term prospects. People will always enjoy traveling and finding things to do while away. Airbnb is also adapting to new trends. Consider the company's push into long-term stays (of 28 days or more), which, during Q2, made up 18% of nights booked.
This is partly a result of the gig economy. Many more people can now travel and work on the road, and when doing so, they often prefer a place with home-like privacy and amenities. Airbnb provides these things better than hotels.
Furthermore, the company benefits from a network effect, with more hosts and guests on the platform, making it even more valuable to prospective hosts and guests. Lastly, Airbnb benefits from excellent gross margins.
ABNB Gross Profit Margin data by YCharts.
The company doesn't own the properties listed on its platform; it merely runs a website and app that help advertise them. That means more money going to the bottom line. Airbnb's business looks likely to continue delivering excellent returns, at least for those investors willing to be patient.
2. Pinterest
Pinterest is a social media company that generates most of its revenue from advertising. However, the ad market has been struggling lately. Although it has recovered somewhat, it is not surprising to see Pinterest's stock market performance lag that of broader equities. The company's financial results haven't been particularly strong.
Pinterest's Q2 revenue of $708 million increased by 6% year over year. The company also remains unprofitable, although it improved on that front in the period. The company's net loss of $34.9 million was slightly better than the loss of $43.1 million reported in the year-ago period.
There were some good signs, though. Pinterest's monthly active users (MAUs) increased by 8% year over year to 465 million. That's an important metric to monitor since the more users on Pinterest's website, the more it can attract advertisers.
The company's revenue should improve once that industry rebounds, especially as it rolls out new initiatives, such as its partnership with Amazon to bring third-party ads onto its platform.
But Pinterest is also exploring other growth avenues. The social media specialist's long-term goal is to turn its platform into an e-commerce hub. Pinterest is already very different from other social media companies because of its image-discover flavor, which is why it can coexist with them.
But Pinterest's image-discovery focus makes it a great platform to attract shoppers. Pictures can be great marketing tools. There are already millions of them saved on Pinterest -- the company calls them "Pins."
Pinterest's goal is to make every Pin shoppable, to allow users on its platform to go from search to discovery, to the shopping cart, to making a purchase. In my view, the two arms of Pinterest's business, from advertising to e-commerce, make for an exciting future for the company.
Investors should sit tight and wait for the stock to recover and provide excellent performances.
