Uber (UBER -0.38%) and Airbnb (ABNB 0.75%) both disrupted legacy industries with their streamlined digital platforms. Uber's ride-hailing platform challenged the traditional taxi business, while Airbnb simplified short-term rentals in a move to compete with hotels.
When I compared these two disruptors in April 2022, I concluded that Airbnb's simpler business model and resistance to macroeconomic headwinds made it a better investment than Uber. But in the time since I made that call, Airbnb's stock has fallen by 11% while Uber's stock surged 95%. Let's see why Uber defied my expectations and outperformed Airbnb by such a wide margin -- and if that trend will continue over the next 12 months.
Image source: Getty Images.
Why did Uber rally?
The bulls broadly lost interest in Uber in 2022 as inflation disrupted the company's post-pandemic recovery. Its gross bookings only rose 19% for the year, compared to its 56% growth in 2021, as macro headwinds drove consumers to rein in spending. Rising fuel costs, demands for higher driver pay, and competition also squeezed its gross margins.
However, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive in 2022 as it divested its lower-margin overseas units, sold its unprofitable advanced technologies group (which had been attempting to develop driverless cars), and downsized its freight and recruitment divisions. Its take rates also improved as it charged higher fees for rides and deliveries. It has been profitable on a generally accepted accounting principles (GAAP) basis over the past two quarters.
Uber's gross bookings grew 18% year over year in the first nine months of 2023 as its mobility and delivery businesses stabilized. Analysts expect its revenue and adjusted EBITDA will rise by 17% and 133%, respectively, for the full year. It's also expected to post a full-year GAAP profit of $795 million, compared to a net loss of $9.1 billion in 2022.
For 2024, analysts expect Uber's revenue and adjusted EBITDA will rise by 16% and 49%, respectively, as its net profit more than triples. Those are stellar growth rates for a stock that trades at just 3 times next year's sales and 21 times its adjusted EBITDA.
Therefore, the bulls rushed back to Uber because it proved that its business model was sustainable. It wasn't growing as rapidly as it had in the past, but it was exercising its pricing power, making smart cost-cutting decisions, and generating consistent profits. In other words, I underestimated Uber's ability to weather the inflationary headwinds.
Why did Airbnb's stock slump?
Back in early 2022, I believed Airbnb was a recession-resistant stock for two reasons. First, it was well positioned to pull budget-conscious travelers away from traditional hotels during periods of economic upheaval. Second, macro headwinds would drive more property owners to rent out their properties to generate extra cash.
However, the war in Ukraine, inflation, and a strong dollar all contributed to conditions that throttled Airbnb's growth over the past two years. At the same time, traditional hotels struck back at Airbnb by offering cheaper and roomier options, while online travel agencies like Expedia (EXPE -0.40%) offered more short-term rentals. Those headwinds, along with a higher mix of short-term stays and promotions, cut short its post-pandemic recovery.
Airbnb's revenue rose by 40% in 2022, compared to 77% in 2021. Analysts expect its revenue to only rise 17% in 2023 and 12% in 2024.
But just like Uber, Airbnb has been cutting costs to boost its profits as its revenue growth cools off. Its adjusted EBITDA margin surged 81% in 2022 while it generated a GAAP net profit of $1.9 billion -- compared to a net loss of $352 million in 2021. Analysts expect its adjusted EBITDA to rise 22% in 2023 and 13% in 2024.
Airbnb believes it can continue to expand as it gains more international hosts and broadens its platform with more experiences to complement its lodgings. However, its stock trades at 7 times next year's sales and 20 times its adjusted EBITDA -- which makes it a bit pricier than Uber relative to its near-term growth potential.
That combination of slowing growth and unattractive valuations likely caused many investors to shun Airbnb over the past year. As for my previous call, I think I overestimated Airbnb's moat and its ability to weather the macro headwinds.
The better buy: Uber
Uber and Airbnb are both disruptive and growing companies. But this time around, I believe Uber's simpler business model, higher growth rates, and lower valuations all make it a more compelling investment than Airbnb. Airbnb might still be synonymous with short-term rentals, but it has yet to justify its higher valuations.
