I am sure most investors are familiar with Airbnb, Inc. (ABNB). Even if you have never booked through the company’s website, it’s very unlikely that you haven’t stumbled upon one of its listed properties when browsing locations to stay at. I am neutral on ABNB stock. (See Analysts’ Top Stocks on TipRanks).
Over the past decade, Airbnb has grown to 4 million hosts who have welcomed over 900 million guest arrivals to approximately 100,000 cities across the globe. Hosts on Airbnb are everyday people who list their properties on the platform.
With hotels partially going out of fashion and an increased interest for travelers to stay in unique locations of every kind, from bungalows, and boathouses, to castles and huts, Airbnb has disrupted the travel industry.
Recent Performance
Due to Airbnb’s area of operations (vacation rentals and tourist experiences), the company was adversely impacted as a result of the COVID-19 pandemic. Lodging/hospitality were some of the hardest-hit industries during the pandemic, hitting Airbnb’s growth trajectory hard.
The company actually reported revenues of $3.38 billion in Fiscal-Year 2020, 29.7% lower year-over-year. With COVID-19 restrictions easing, the company managed to generate $1.3 billion in revenues in Q2 2021, a nearly 300% increase year-over-year.
Airbnb incurred a net loss of $68 million during the period, but the bottom line significantly improved compared to a loss of $507 million in the prior-year period.
Growth was driven by higher booking volumes. Specifically, nights and experiences booked came in at 83.1 million, a massive increase from the 28 million in the same period last year, with the company almost reaching its pre-pandemic levels.
The Road Ahead
In my view, while there are some short-term hurdles ahead for Airbnb, the company’s future remains very bright. In the short term, COVID-19 remains a challenge. Despite traveling restrictions easing in Europe and the U.S., this is hardly the case in Asia. Many countries in Asia have only recently started to accept tourists, and the truth is, nobody really knows how much longer the overall restrictions will last.
However, in a post-COVID world, Airbnb will thrive, in my view. Its platform uses very efficient technology in promoting the best bookings, it is incredibly user-friendly, and hotels will probably continue to lose appeal over the long term.
This should result in continuous growth in the medium term. Analysts expect the company to keep growing its top line north of 20% over the next five years. Considering that the stock is trading at around 15 times its projected FY-2022 sales, Airbnb seems quite pricy, nonetheless.
The company currently enjoys gross margins of about 78%. However, the multiple on sales still implies a notable premium among its industry peers.
If we compare Airbnb with Booking.com (BKNG), the latter is priced at around 6.6 times next year’s revenues, which implies that Airbnb is trading at a significant premium. This is especially true considering that Booking.com is expected to grow 45.8% in 2022 and 19.4% in 2023.
Keep in mind that Airbnb has become a household name. This is likely to cause the stock to trade at a slight premium consistently. Its for-all-stakeholders approach should also contribute to that from an ESG perspective.
Still, I would require more data to identify the company’s recovery and growth trajectory before investing. I am also cautious about the stock’s current valuation. For this reason, I remain neutral on Airbnb.
Wall Street’s Take
Turning to Wall Street, Airbnb has a Moderate Buy consensus rating, based on 15 Buys, seven Holds, and one Sell assigned in the past three months. At $184.61, the average Airbnb price target implies 8.3% upside potential, nonetheless.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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