To borrow a poignant quote from Warren Buffett, "Someone's sitting in the shade today because someone planted a tree a long time ago." As a long-term investor, you're not buying stocks because of the share price movements that may or may not occur in the coming months or even the next year. Instead, you should be focusing on quality businesses that can deliver durable growth over a period of many years.
When you invest with this mindset, you can look beyond temporary volatility and instead train your focus on investments that align with your personal portfolio goals and risk tolerance and that you believe are solid buys for the long term. If you are looking to add more top-notch growth stocks to your portfolio as the new year starts, don't overlook these two supercharged businesses when formulating your list of buys.
1. Airbnb
Airbnb (ABNB 1.09%) has seen its shares remain highly volatile amid the choppy market waters of recent months, but this hasn't correlated with its financial performance in the slightest. In fact, stepping back from the stock's movements and looking at the business alone, one could argue that Airbnb is in a stronger position than ever.
The third quarter of 2022 saw the company report its highest quarterly revenue to date and its most profitable quarter ever. Airbnb pulled in $3 billion in revenue for the three-month period, up 29% year over year (or 36% if you take out the impact of foreign currency weaknesses).
Meanwhile, the company's net income soared to $1.2 billion, up 46% from the year-ago period and 61% on a currency-neutral measurement. Nights and experiences skyrocketed 25% year over year to 100 million, while free cash flow for the three-month period came in a little below $1 billion.
From long-term travelers (stays of 28 days or more are still the fastest-growing trip category on Airbnb, comprising 20% of all stays booked) to vacationers and everyone in between, the pandemic and the period that has followed has left behind a world that looks very different than it did before. More people than ever are working on a remote, hybrid, or flex basis, and this change in work habits combined with the reopening of borders and increasing popularity of nonurban stays is continuing to inject durable growth into Airbnb's business.
Airbnb continues to upgrade the experience it provides for hosts and guests. It introduced AirCover for hosts in 2021, followed by a version for guests in 2022. With AirCover, guests can access protections like reimbursement for a listing that is misrepresented or when a host has to cancel a booking less than 30 days before the check-in date. AirCover is free and included with each booking. On the host side, AirCover includes coverage like liability insurance and damage protection.
Whether you're looking for an alternative to apartment living, an ideal place to enjoy a relaxing vacation, or a way to earn extra income, Airbnb provides a ready incentive for both consumers and hosts to leverage its platform. Even if a recession comes, these qualities are baked into Airbnb's business and can continue to drive growth and investor returns over the long term. For investors with a buy-and-hold horizon of at least three to five years, the current market environment shouldn't stop you from taking a second look at this top travel stock.
2. Upstart
Upstart (UPST -0.58%) has undeniably faced a particularly tough market environment. The artificial intelligence-based platform's mission is to revolutionize the established patterns of the broader lending industry. Instead of focusing solely on an applicant's FICO score to assess whether or not they are creditworthy and ought to be extended a loan, Upstart's platform looks at a much wider range of elements.
These factors include income and employment history, as well as their credit score. Upstart collates these with thousands of data points to determine whether or not to extend a loan. Upstart's platform is so efficient that, as of the third quarter of 2022, 75% of all loans processed on the platform were completely automated. In its third-quarter earnings presentation, Upstart reported that the accuracy of its platform model had upgraded by the same amount in the prior four months as in the entire last two years.
Upstart's platform is constantly learning and evolving. The combination of a tough macro environment with a higher risk of default, as well as a pullback in institutional investors willing to part with capital (this is how most of Upstart's loans are funded), is driving loan volume down. This is to be expected.
Upstart's model is designed to change based on current risk factors present both in the macro environment at large and those specific to the individual consumer, so it's issuing fewer approvals, and approved loans are being assessed higher interest rates right now. Even so, Upstart's network of bank and credit union partners jumped nearly 170% year over year in the third quarter of 2022.
Auto lending is a key segment of Upstart's overall business that is continuing to drive notable growth. In the third quarter, Upstart's network of auto dealer partners grew more than 140% year over year, with its auto retail lending software capturing about 25% of the entire U.S. population based on its broad nationwide deployment. Its auto retail software is now the second-fastest growing of any such offering in the country. The company just announced a wave of upgrades, including online sales and financing applications so dealers can offer their customers a fully digital car-buying experience, along with seamless integrations to Upstart's lending platform for auto loans.
Upstart's rapid expansion into various segments of the wider lending market presents a tremendous opportunity for the company's continued growth well outside of the near-term macro environment. The auto lending market alone represents an addressable market opportunity of more than $160 billion. For investors with the fortitude to ride out more choppy waters in the coming months, the long-term potential of this business may be too good to pass up.
