A lot can happen in the next 10 years. Recessions, bear markets, geopolitical instability, and much more could disrupt the investing world. However, we can be reasonably confident that broader equities will maintain a general upward trend and deliver average annual returns above 5% in the next decade.
Buying exchange-traded funds (ETFs) that track the performance of major indexes is a great way to invest. However, it's also possible to perform as well or even better than the market by investing in individual stocks. Let's consider two that could deliver solid returns through 2035: PayPal (PYPL -0.12%) and Airbnb (ABNB 0.24%).
1. PayPal
A lot has changed for PayPal since 2014. It was once the primary payment processor for its former parent company, eBay, but that is no longer the case. PayPal also revamped its management team last year. The new CEO, Alex Chriss, took over in late 2023. PayPal was struggling with slow revenue and subscriber growth following the boom it experienced in the early days of the pandemic. It needed a fresh start, and so far, things aren't so bad. True, PayPal's financial results remain somewhat tame.
In the third quarter, the company's revenue increased by 6% year over year to $7.8 billion. PayPal's total payment volume was up 9% year over year to $422.6 billion, while it ended the period with 432 million active accounts, up just 0.9% compared to the year-ago period. However, the company's new management team has made important moves. It introduced a series of new features, including Fastlane, which helps speed up checkout, and Smart Receipts, an option that uses artificial intelligence (AI) to help predict what customers might want to buy next.
PayPal has also announced partnerships with several e-commerce and fintech leaders, including Shopify, Amazon, and Adyen. The partnership with Shopify, for instance, adds PayPal as a payment processing option on the e-commerce platform in the U.S. Further, PayPal has been engaged in cost-cutting efforts. In my view, these initiatives have yet to fully impact the company's financial results, although investors have taken notice and are bidding up the stock price.
PayPal's shares are up by 41% year to date. Still, there is plenty of upside left for patient investors. Thanks to a new management team, PayPal is getting back on track after some headwinds it encountered. The company still owns one of the deepest ecosystems in the fintech world and benefits from the network effect. There is plenty of growth fuel left in the fintech industry, where PayPal is a pioneer and leader. The company is well-positioned to deliver outsize returns over the long run.
2. Airbnb
Airbnb has become one of the leading companies in the vacation rental niche. The great thing about the business is that it doesn't actually own rental properties, so it avoids the high fees and costs associated with running them. Owning and operating rental units rarely comes with high margins.
The company provides a platform to match hosts with guests and receives fees accordingly, something that does carry pretty high margins. Despite non-cash tax expenses it incurred this year, which made its third-quarter results look worse than they were, Airbnb's profitability and margin metrics have been solid in the past few years.
ABNB Net Income (Quarterly) data by YCharts.
Further, there are plenty of opportunities ahead for the company. The demand for vacation rentals should continue growing through the end of the decade and probably as long as people enjoy traveling. Airbnb's business is well adapted to cater to some key changes and shifts. Consider that the pandemic helped increase the number of people working from home. Many will never go back and will choose to be on the road while working remotely. Airbnb provides a home away from home.
The amenities and privacy it offers, which can sometimes be hard to find in traditional hotels, make Airbnb a more attractive option for many travelers, especially for longer trips. Long-term stays of 28 days or more increased once government-imposed lockdowns expired, although they have since stabilized. Also, Airbnb's platform benefits from a network effect, with more hosts attracting more guests and vice-versa.
We haven't even touched on the upgrades it is making to various parts of its business, including improving its app and its goal to create an AI-powered concierge. So, even though the pandemic severely disrupted the business, Airbnb's financial results have bounced back and continue moving in the right direction. The company's opportunities and initiatives could lead to strong performances over the next decade.
