Nasdaq bear market: Should you buy the dip on these 2 growth stocks?

These businesses are backed by compelling investment theses.

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This article was originally published on All figures quoted in US dollars unless otherwise stated.

The growth-heavy Nasdaq Composite has plunged 27% since peaking in November, and many individual stocks have fallen even further. For instance, MercadoLibre (NASDAQ: MELI) and Airbnb (NASDAQ: ABNB) are down 59% and 46%, respectively, from their own all-time highs. Generally speaking, those declines have been fueled by concerns about high inflation and rising interest rates, not any material weakness in the businesses. 

Of course, that doesn't make the losses any less real, but it does create a buying opportunity. MercadoLibre and Airbnb are important players in massive markets, and both stocks are backed by a compelling investment thesis.

Here's what you should know.

1. MercadoLibre

MercadoLibre is an unstoppable force in Latin America. It operates the largest e-commerce marketplace in the region, both in terms of unique visitors and sales. That creates a powerful network effect: Sellers naturally gravitate toward the most popular platform, and buyers naturally pick the platform with the greatest selection.

To further accelerate that flywheel, MercadoLibre offers an ecosystem of integrated services. That includes digital payments through Mercado Pago, fulfillment and logistics through Mercado Envíos, and financing through Mercado Crédito. Those value-added products make its marketplace even stickier, and adoption is on the rise in all cases.

In the first quarter, Mercado Pago's payment volume rose 81% year over year to $25.3 billion. Mercado Envíos played a part in shipping 91% of items through its managed network, up from 80% in the prior-year period. And Mercado Crédito's credit portfolio rose 319% to $2.4 billion. That momentum translated into strong financial results. Revenue soared 65% to $2.2 billion in the first quarter, and the company generated a GAAP profit of $1.30 per diluted share, up from a loss of $0.68 in the same period last year. 

In the coming years, shareholders have good reason to believe the company can maintain that momentum. Internet penetration is growing quickly in Latin America. That should be a tailwind for MercadoLibre's commerce and fintech businesses. And with the stock trading at five times sales -- near its cheapest valuation in the past decade -- now looks like a great time to buy.

2. Airbnb

Airbnb connects potential guests with four million hosts, helping travelers find immersive lodgings around the world. And by crowdsourcing rental properties, Airbnb can offer more flexibility than traditional hotels, both in terms of lodging type and location. Guests can stay at a rustic farmhouse in the country, a log cabin in the mountains, or a trendy apartment in the city. Airbnb even lists over 170,000 unique stays -- think treehouses, windmills, and big-rig trucks.

Thanks to its differentiated business model, Airbnb is essentially printing cash. Revenue skyrocketed 93% to $6.6 billion in the past year, and the company generated $2.8 billion in free cash flow, up fivefold from $517 million.

Last year, management was laser-focused on preparing for the travel rebound. The company simplified the onboarding process for hosts and introduced flexible search parameters for guests, allowing people to receive personalized recommendations when they aren't tied to a particular date or destination. Both initiatives were wildly successful. Airbnb finished 2021 with a record six million active listings on its platform, and guests have used the flexible search option two billion times.

In the coming years, management plans to ramp up its Experiences offering, a service that connects guests with immersive activities. Experiences account for $1.4 trillion of Airbnb's $3.4 trillion addressable market. If the company can successfully scale that part of the business, it could turbocharge growth and further differentiate the company from its rivals.

Regardless, Airbnb offers more flexibility for travelers, and its business model is more agile than traditional travel options. The company can onboard new hosts in a matter of minutes without spending much money. That means it can add inventory more quickly and cost-efficiently than traditional hotels. That should make this growth stock a rewarding long-term investment. 

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Trevor Jennewine has positions in Airbnb, Inc. and MercadoLibre. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Airbnb, Inc. and MercadoLibre. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. 

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