The stock market has delivered solid returns for investors so far this year, and excitement about the new bull market is palpable. If you're looking for compelling businesses to buy and hold for the long haul, you should focus on how those companies look as long-term investments and if they align with your overall portfolio objectives.
Your risk appetite should also define the types of stocks you buy. If you have the risk tolerance to put cash into growth stocks right now, there are some doing exceptionally well right now that are worth a second look. Here are two to consider.
1. Lyft
Lyft (LYFT 5.30%) shares have popped around 40% over the last year. The company's expansion into new markets, its improving financials, new initiatives for drivers, and a growing active rider base have all been factors moving the needle here.
So far, Lyft has focused its operations on the U.S. and Canada only. Its expansions in the Canadian market have been key growth drivers. It recently launched in Edmonton and Calgary, two of Alberta's largest cities. Now, Lyft is available in five of Canada's largest cities, and 14 smaller ones. In 2024's first quarter, the platform facilitated twice as many rides in Canada as it had in the prior-year period.
Lyft has also been enacting new initiatives to retain drivers. For example, in February, the company introduced a new payment arrangement that allows riders to keep at least 70% of the fares they earn each week after external fees are taken out.
It also introduced Women+ Connect, an initiative that allows women and nonbinary riders to match with other women and non-binary drivers, and vice versa, so everyone feels safer. According to management, in the first quarter, driver activations of the feature rose nearly 24% year over year.
On the financial front, gross bookings totaled $3.7 billion in the first quarter, up 21% from the year-ago period. That drove revenue up 28% to $1.3 billion. While the company is still operating at a net loss on a generally accepted accounting principles (GAAP) basis, it generated adjusted earnings of $59 million, a 157% improvement from a year ago.
On another important note, Lyft recently became cash-flow positive. The company reported free cash flow of $127 million in the first quarter, and expects to be free-cash-flow positive for the year.
During its recent investor day presentation, management outlined aggressive growth goals for margin and cash expansion. Management aims to expand gross bookings at a compound annual rate of about 15% between 2024 and 2027 while delivering free-cash-flow conversion from adjusted earnings of more than 90% annually from 2025 to 2027. (Free-cash-flow conversion indicates how a company turns profits into free cash flow.)
While it's not yet GAAP profitable, Lyft looks to be on the right path as it improves its bottom line and grows its cash position. The company operates in a competitive marketplace, but its focus on specific markets and growing its loyal customer space in those areas is driving meaningful growth and revenue increases. Ridesharing is also a broad marketplace with room for multiple players to succeed. Those with a forward-looking outlook and an appropriate level of risk tolerance might find that Lyft looks like an attractive investment for the long term.
2. Airbnb
Airbnb (ABNB 0.01%) is trading up around 17% from one year ago. The company has continued to deliver impressive financial results as the travel industry roars back to life. At the same time, it benefits from a variety of advantages that have widened its moat and given it a competitive edge in a fragmented, high-growth industry.
While hotel stays are still an incredibly popular way for vacationers to travel, there are limitations to these types of bookings, and people often prefer the flexibility that a full-fledged vacation rental can provide. With millions of listings in virtually every corner of the world, from boutique hotels to full apartments to room-only stays, few platforms offer the versatility that Airbnb does.
Whether a traveler is looking to stay in a location for a few days or a few months, Airbnb probably has something that aligns with their needs. The company has also been taking steps to remove from its platform listings that it deems low quality. In the first quarter, even with these quality control actions factored in, active listings soared 15% compared to the year-ago period. This demonstrates Airbnb's powerful network effect -- in other words, as more users join the platform, its value increases.
The platform provides a significant value proposition not only to guests but also to hosts. In its summer 2024 release, the company introduced a set of new features for group trips, including shared wish lists and a new messaging tab that allows everyone participating in a group trip to message the host within a group thread.
The summer updates follow several other useful updates in the winter and spring, such as the launch of guest favorite badges that help travelers identify the most-loved homes on Airbnb. Since the launch of guest favorites in November, management reported that 100 million nights have been booked for these specific listings.
Airbnb also launched an initiative called verified listings, which indicates homes that have gone through a specific authentication process. In the company's first-quarter report, management reported that 2 million listings in five countries already had verified badges, and said that it planned to launch the initiative in 30 additional countries this year.
Airbnb's focus on the quality of homes and stays is attracting more hosts and guests. The company makes essentially all of its revenue from stays booked on the platform. Its revenue is derived mostly from service fees for bookings, and host fees from Airbnb experiences.
Revenue climbed 18% year over year in Q1 to $2.14 billion, and Airbnb raked in a profit of $264 million, making it the most profitable first quarter in the company's history. Nights and experiences booked rose by just shy of 10% year over year, and the company had $1.9 billion in free cash flow. There's a lot to like about what Airbnb looks like now and where this business is headed. Investors might find it's a good time to take a slice of this top travel stock.
