Investors may want to buy these stocks before they head higher.
The stock market is in roaring form in 2023 thanks to multiple catalysts, including cooling inflation, a resilient jobs market, the receding possibility of a recession, strength in consumer spending, and a new growth driver in the form of artificial intelligence (AI) that’s expected to give the global economy a nice boost.
This explains why the S&P 500 is up more than 18% so far this year. The tech-focused Nasdaq Compositeindex, meanwhile, has logged even stronger gains of 35%. This terrific stock market rally has also lifted shares of Airbnb (ABNB 2.40%) and Twilio (TWLO -0.91%). While Airbnb stock jumped 71% this year, Twilio also delivered a healthy upside of 34%.
Both stocks still have room to run higher thanks to the industries they are operating in. In this article, we will look at the reasons why it may be a good idea to buy shares of Airbnb and Twilio right away.
1. Airbnb
Investors might be surprised at Airbnb stock’s surge this year considering that the vacation rentals specialist’s performance in the first quarter and its outlook for the second quarter suggest that its growth is set to slow down significantly in 2023.
Airbnb’s revenue was up 20% year over year in Q1 to $1.8 billion. The company’s second-quarter guidance of $2.4 billion suggests that its year-over-year growth could slow down to just 14%. However, that hasn’t deterred investors from piling into Airbnb stock, for a few simple reasons.
First, Airbnb’s slowdown this year isn’t surprising, as the company benefited from pent-up travel demand last year as pandemic slowdowns eased. As a result, Airbnb is going to face tougher year-over-year comparisons in 2023. But it is still on track to deliver robust double-digit growth this year, with analysts forecasting a 13% increase in the company’s annual revenue to $9.5 billion.
It is also worth noting that Airbnb stock underperformed the broader market over the past three years despite growing its revenue at a healthy pace.
So Airbnb’s gains this year seem justified as the market finally seems to be rewarding the company for the solid growth that it delivered over the years.
The second reason why Airbnb is popular with investors this year is because of its ability to deliver a positive earnings surprise amid a recovery in travel demand. The company has crushed Wall Street’s earnings expectations by big margins in each of the last four quarters. It delivered Q1 earnings of $0.18 per share, while analysts expected $0.09 per share.
Investors can expect this trend to continue, as tourism demand is showing signs of resilience this year. According to the U.S. Travel Association, travel spending improved by 5.5% year to date through the month of May 2023. As inflation recedes and the fear of a recession fades, more people are likely to travel. According to a Forbes survey of 1,000 Americans, 49% plan to travel more this year compared to 2022, while 38% plan to travel the same as last year. Only 8% of respondents plan to travel less as compared to 2022.
So there is a possibility of Airbnb delivering better-than-expected growth in 2023. More importantly, the company is operating in a market that’s expected to thrive in the long run. Precedence Research estimates that the vacation rental market could grow at an annual pace of 17% through 2030 and generate $111 billion in annual revenue.
This indicates that Airbnb is scratching the surface of a big growth opportunity. Even better, the company is taking steps to increase its reach globally, which explains why analysts expect its earnings to increase by 22% a year for the next five years. All this makes Airbnb a top growth stock to buy for the long run, and investors would do well to hurry before it jumps higher.
2. Twilio
Cloud communications specialist Twilio is trading at an eye-popping discount right now. The stock’s price-to-sales ratio of just 3.2 is significantly lower than its five-year average sales multiple of almost 16. Buying shares of Twilio at this multiple looks like a no-brainer, as the company’s growth is expected to accelerate substantially.
Twilio reported an adjusted loss of $0.15 per share in 2022. The company is expected to turn profitable this year, and analysts expect to sustain its bottom-line growth momentum over the next couple of years as well.
Given that Twilio operates in the fast-growing communications platform-as-a-service (CPaaS) market, it wouldn’t be surprising to see it achieve such impressive growth. Market research firm IDC estimates that the CPaaS market could generate annual revenue of almost $30 billion in 2026, compared to just over $14 billion last year.
Twilio delivered $3.8 billion in revenue last year, which means that it controls 27% of the CPaaS space. The company is taking steps to ensure that it maintains its healthy share of this growing market. For instance, Twilio offers a solution that allows its customers to integrate AI tools within their customer service solutions with the help of plugins.
In fact, Twilio customers can integrate OpenAI’s large language models such as GPT-4 and ChatGPT into their customer service offerings. Using these solutions, Twilio customers will be able to respond to users’ queries with AI-driven messages, create summaries of conversations with customers, and even analyze the sentiment of a conversation with AI.
The adoption of AI in the customer service space is expected to grow at an annual pace of 24% over the next decade. So Twilio can take advantage of yet another opportunity within the cloud communications market and sustain a healthy pace of growth over the long run. As the stock is currently trading at an affordable multiple, investors should consider buying it before it jumps higher and becomes expensive.
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