- Uber and Airbnb face similar macroeconomic headwinds
- But the pandemic shock has shown that their business models are resilient and can withstand a sudden drop in demand
- Uber stock has rallied sharply over the past three months, up about 50% from its June low
Unless the economy takes a sharp turn for the better, the two technological disruptors of the modern era, Uber Technologies (NYSE:) and Airbnb (NASDAQ:), are poised to experience their first recession since becoming public companies.
San Francisco roommates belong to a market segment that emerged after the 2008 global financial crisis. Therefore, they have not yet faced challenges like the ones we are currently facing.
Although investors are typically reluctant to keep tech companies in their portfolios when the sails are rough, both global operators have emerged from the pandemic-related shock to the economy much stronger.
Here’s a deeper dive into their recent business performance to analyze if their shares could prove to be bargains for long-term investors.
Uber benefits from diversification
CEO Dara Khosrowshahi’s main post-pandemic strategy was to capitalize on the delivery boom by expanding into other categories such as convenience store items, alcohol and groceries, and turning the Uber Rides app into much more than just a ride-sharing service.
The latest Uber’s from San Francisco show that this strategy pays off. Both revenue and gross bookings rose to record highs for the quarter ended June 30th.
Uber Eats’ revenue rose 25% year over year and is expected to continue rising, as Khosrowshahi told analysts that a key focus for the rest of this year will be boosting profitability in the delivery segment.
Uber stock has rallied sharply over the past three months, up about 55% from its June low. According to most analysts, this momentum is likely to continue as the company nears profitability.
In an Investing.com poll of 46 analysts, 41 are rating UBER stock as a Buy, with the target price implying a consensus of 48%.
Source: Investing.com
In a recent note, Wolfe reiterated Uber as a top pick and said it sees a “significant runway for profitability” for the company. Bernstein also reiterated Uber as an outperformer, arguing that in a tough economic environment, investors should stick with market leaders like Uber, which may emerge as better companies from this period.
Airbnb benefits from the global travel boom
Also based in San Francisco, the rental platform has developed a business model that is flexible enough to deal with the diverse economic challenges. The latest evidence of this adaptability came during the pandemic, when demand for travel suddenly plummeted, raising doubts about the future of a company that went public during one of the biggest health crises in modern history.
But in those two years of upheaval, Airbnb not only managed to weather the pandemic, but also thrived, making 2021 its best year in company history.
The company quickly restructured its app to capitalize on a new world of travel, as the new remote working policies allowed people to spread out across thousands of cities and stay for weeks, months, or even entire seasons Time.
Long-term stays were the fastest-growing category in the second quarter, up almost 90% from three years ago, suggesting some of the pandemic-driven surge will remain, especially if a large pool of workers has the choice to work from anywhere to work .
According to its most recent report, ANBN saw second-quarter revenue jump 58% year over year to $2.1 billion, which helped propel the company’s most profitable second quarter to date. Still, that growth was slower than last quarter, when revenue rose 70% in the first quarter of 2020.
As rising prices and higher interest rates begin to constrain consumers’ spending power, travel demand could take a hit in the coming days if the desire to take the plane eases in the wake of the pandemic.
That’s the main reason most Wall Street analysts aren’t convinced this is the right time to bet on Airbnb stock, despite the company forecasting a record quarter for gross bookings and sales. In an Investing.com poll of 39 analysts, only 16 rated the stock as a Buy.
Source: Investing.com
bottom line
While I like both stocks for any long-term buy-and-hold portfolio, Uber’s diversified business model makes it much more resilient to an economic shock. Airbnb, while still strong, is more vulnerable to economic headwinds as travelers restrain their discretionary spending. If you have to choose between the two, I recommend sticking with Uber.
Disclosure: The author has been active at both Uber and Airbnb for a long time.
