Both Airbnb (ABNB 0.75%) and Uber Technologies (UBER -0.38%) recently reported their fourth-quarter 2023 financial results, demonstrating ongoing momentum that these businesses are benefiting from in the face of macro uncertainty. The two gig-economy heavyweights have some serious investment merit.
But are these phenomenal growth tech stocks worthy of Warren Buffett's investment consideration? There are three reasons I can identify why the Oracle of Omaha would likely love to add Airbnb and Uber shares to Berkshire Hathaway's portfolio. But there's one obvious reason he would hate them, too.
Dominating the internet economy
With first-mover advantages in their respective industries, both Airbnb and Uber have superior service offerings that stem from their tremendous scale. I believe Buffett would appreciate that these two businesses have come to dominate their respective end markets, which allows them to spend more than rivals on tech and development initiatives, marketing, and hiring the best talent.
Airbnb and Uber have already won. This becomes obvious when you realize that their company names have become verbs. Take a look at Berkshire's massive portfolio, and it's obvious Buffett prefers to own businesses that possess some sort of economic moat. This favorable attribute reduces the risk of disruption and financial troubles, and it raises the chances a company will be around and thriving far into the future.
Both Airbnb and Uber benefit from what is arguably the most powerful moat source: network effects. Airbnb has 5 million hosts and 7.7 million listings in 220 countries and regions across the globe. There was $73 billion in gross booking value and 448 million nights and experiences completed in 2023. More hosts add value for travelers, and vice versa.
It's a similar story for the ride-hailing and delivery platform. With more restaurants, drivers, and riders on the app, Uber immediately becomes more valuable to all stakeholders as there are greater opportunities to find what you need and transact. The company has 6.8 million drivers and couriers who helped complete 9.4 billion trips and $138 billion in gross bookings in 2023.
Another reason Buffett would like these two companies has to do with their financial positions. Airbnb produced positive operating income in each of the last three years. Uber, on the other hand, reached this milestone last year. These businesses also generated more than $3 billion in free cash flow each in 2023.
To be fair, I'm sure Buffett would want to see a longer track record here. But the companies' unrivaled scale benefits and growth trajectories have gotten them on a sustainable financial path. Looking ahead, it's all about maintaining this position.
Hard to predict
However, due to the unpredictability of these companies' long-term financials, Buffett probably wouldn't touch them with a 10-foot pole. There are a lot of unknowns.
Buffett has famously long been a shareholder in Coca-Cola, having first purchased stock in 1988. One of the reasons he was confident in the company's long-term prospects was because he had conviction in the fact that the beverages the business sold would still be popular all over the world decades in the future. In other words, Coca-Cola was and is extremely predictable, as its industry doesn't undergo much change.
The same can't be said about businesses in today's internet-enabled economy. Even dominant category leaders like Airbnb and Uber face risks, primarily from regulatory uncertainties, that make it almost impossible to forecast what their financials might look like 10 years from now. And there's always the possibility that technologies and consumer behaviors will change.
I suspect that this reality is what keeps Buffett away from owning Airbnb and Uber.
