£2k in a Stocks and Shares ISA? One top stock I’d buy before the New Year!

Here’s one US stock this writer thinks could grow for a long time to come and deliver attractive returns in a Stocks and Shares ISA.

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The festive season is a time when budgets often get stretched, and this could mean less money to invest. I’m personally planning to reduce contributions to my Stocks and Shares ISA till January.

However, if I were fortunate enough to have a spare £2k sitting idle in my ISA right now, I’d buy this high-quality stock before 2024.

Strong competitive position

As a travel booking platform with over 150m users, Airbnb (NASDAQ: ABNB) is actually a fitting pick for the holiday season.

Trading at $133, the stock is up 60% this year, but is actually 33% lower than it was in late 2021.

This is despite the California-based company continuing to grow both its top and bottom lines at an impressive rate.

One of Airbnb’s main strengths is its trusted global brand. The name has even become a verb (“We’re planning to Airbnb in Tokyo“).

This feeds into a very powerful network effect. As more hosts offer more properties, this naturally attracts more travellers, and so on.

It’s a virtuous circle, and a lucrative one for some hosts, as they earned more than $19bn collectively in the most recent quarter (Q3).

A phenomenal profit margin

Turning to Q3, Airbnb reported that gross booking value increased 17% year on year to $18.3bn. Active listings were up 19%, with growth in all regions.

This fed into revenue of $3.4bn, representing growth of 14% (excluding currency exchange rates).

Adjusting for a one-time tax benefit of $2.8bn, net income totalled $1.6bn, 33% ahead of last year. That translates into an incredible net income margin of 47%.

This points to Airbnb’s asset-light platform model, which simply gushes gobs of free cash flow ($4.2bn in the trailing 12 months). And this has enabled it to repurchase $3bn worth of its own shares in a little over a year.

Regulation risk

A huge 113m nights and experiences were booked during the quarter. Yet one downside to this scale is that more horror stories circulating online from guests cannot be ruled out. This is largely out of the firm’s control, yet could still negatively affect its reputation and share price.

Additionally, regulation in various places has the potential to impact the company’s operations. New York, for example, recently initiated a de facto ban on short-term rentals.

That said, Airbnb’s growing global presence should comfortably offset such regulation.

This was highlighted when the company pointed out that before regulation New York City represented approximately 1% of its global revenue. Latin America and Asia Pacific are now its fastest-growing markets.

A long runway of growth left

Looking forward, I’m very optimistic as a shareholder. Airbnb remains a go-to travel booking app in many parts of the world. And younger generations continue to prioritise travel and experiences, which should benefit the company.

The shares are trading on a forward price-to-earnings (P/E) ratio of 30. While that’s not cheap, I do think it’s reasonable given the quality of the business and its growth potential.

Finally, I’d highlight that bookings of three months or longer increased almost 20% in the quarter. For me, this hints at Airbnb’s potential to become a much more comprehensive property platform. A sort of global Rightmove.

If so, then I’d expect its market cap of $87bn to head much higher over time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Airbnb. The Motley Fool UK has recommended Airbnb and Rightmove Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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