Roblox (RBLX -0.37%) and Airbnb (ABNB -0.89%) have enjoyed a surge in interest among retail investors following their much-anticipated IPOs this year. Both companies rank among the top 100 most widely held on the Robinhood investment platform and look poised for long-term growth because of their innovative business models. Let's dig deeper to find out why they could boost your investment portfolio.
1. Roblox
With a market cap of $37 billion and annual revenue of $924 million, Roblox boasts a sky-high price-to-sales (P/S) multiple of 40. But the video game entertainment company deserves its premium price because of its rapid growth rate and game-changing business model.
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Unlike traditional rivals such as Zynga and Electronic Arts, which drive growth through expensive acquisitions and hyped-up blockbuster franchises, Roblox is a game-creation platform that lets independent developers create much of its content. This strategy may save on development costs and drive growth by generating a massive amount of unique content for the Roblox multiverse.
Management expects revenue to surge by up to 64% to $1.52 billion in 2021 despite daily active user (DAU) growth decelerating to between 6% to 12% to 36.4 million users (down from a 68% growth rate in the nine months ended in September 2020). Roblox will have to work harder to expand its user base as coronavirus-related tailwinds fade. But the company plans to court older demographics and international markets to power the next leg of expansion.
2. Airbnb
The coronavirus pandemic is finally winding down. And that means it's time for investors to bet on travel and tourism stocks that can bounce back from the crisis. Shares in Airbnb have rocketed 163% above their IPO price of $68 in December, and the company looks poised for continued outperformance because of its innovative peer-to-peer business model.
COVID-19 infections are trending downward in the U.S., and while the virus may be resurging in some parts of Europe, the global vaccine rollout could help bring the situation under control. This trend is welcome news for Airbnb as it seeks to disrupt the $600 billion (as of 2018) hotel industry.
Airbnb's revenue fell 30% to $3.4 billion because of the impacts of the coronavirus pandemic, which led to lockdowns and travel restrictions for much of the year. However, management is expecting a travel rebound in 2021 as vaccines become more available to the public. Airbnb also expects to benefit from evolving trends in the travel industry, which may favor immersive local experiences over distant tourist destinations. The company's asset-light model could also give it advantages over rivals in operating performance and cost structure.
Unlike traditional hotels, Airbnb shifts most accommodation-related expenses to the hosts on the platform, who have to deal with everything from cleaning to maintaining their properties. This potentially margin-enhancing strategy could boost Airbnb's cash flow as it scales up, helping justify its high valuation of 16 times sales compared to rivals like Hilton Worldwide Holdings and Marriott International, which trade at eight and four times sales, respectively.
You get what you pay for
Roblox and Airbnb trade at high valuations of 40 and 16 times sales -- which is much higher than the S&P 500's average top-line multiple of just three. But they deserve these premium valuations because of their growth potential and highly disruptive business models, which may revolutionize the video game and hospitality industries.
