I am neutral on Airbnb (ABNB), as its strong growth rate is largely offset by its lofty valuation.
Airbnb is the world’s largest online booking network, allowing property owners to rent their spaces out to travelers in search of temporary accommodation. (See ABNB stock charts on TipRanks)
The company’s network stretches across 220 countries, over 100,000 cities, and comprises more than 4 million hosts. Airbnb is most popular in North America, with the region accounting for over half of the company’s total revenue. EMEA, meanwhile, makes a meaningful 30% contribution to the company’s revenue, while the remainder comes from Latin America and the Asia-Pacific.
Airbnb primarily generates its value through the transaction fee that it charges for online bookings. The agency’s competitive edge resides in its wide range of attractive, yet affordable, accommodation options, making it the preferred choice for travelers and tourists.
This preference, in turn, also makes Airbnb the premier choice for property owners looking to offer their accommodations to travelers, which has resulted in its large, and increasing, host network.
Airbnb remained quite resilient during 2020, when the COVID-19 pandemic was at the peak of its powers. According to its most recent results, Airbnb is now rapidly returning to – and in some cases, even exceeding – its pre-COVID performance levels.
The 83.1 million nights and experiences booked during the second quarter of this year were on par with the number of bookings during 2019 Q2 (the last quarter before COVID-19), and up 197% year-over-year.
The company generated total revenue of $1.3 billion during the second quarter of 2021, which is a 10% improvement on its 2019 Q2 revenue earnings. This improvement coincides with the acceleration in travel recovery taking place across many parts of the world, along with Airbnb’s stable performances in North America, EMEA improvements, and an increase in ADR (Average Daily Rates).
Even though the company failed to generate a profit during the second quarter of 2021, its net loss of $68 million reflects a $507 million improvement on its 2020 Q2 losses, and a $229 million improvement on its losses incurred during the same quarter in 2019.
The recent financial results indicate that people are prepared to resume traveling, and Airbnb is prepared to host them. Increasing vaccinations and decreasing travel restrictions mean that Airbnb’s performance will continue to grow over the next few years.
Airbnb stock is certainly not cheap, as it currently trades at 14.8x forward sales, 71.3x forward EBITDA, and 273.1x forward normalized earnings.
Furthermore, on a trailing basis, the company remains unprofitable, though losses have been narrowing lately as margins have expanded. For example, in 2020, the EBITDA margin was negative 7.4%, but is expected to be 20.4% this year, and 21.5% in 2022. Net income margins were a horrendous negative 129.6% in 2020, but are improving to an expected negative 19.4% in 2021, and an expected 0.5% in 2022.
Revenue is expected to surge by 68.6% in 2021, and 25.5% in 2022, making the current lofty valuation not quite as high as it might seem at first glance.
Wall Street’s Take
From Wall Street analysts, Airbnb earns a Moderate Buy rating consensus, based on 13 Buy ratings, seven Hold ratings, and zero Sell ratings in the past three months. Additionally, the average ABNB price target of $179.90 puts the upside potential at 8.4%.
Summary and Conclusions
Airbnb is recovering well from COVID-19 headwinds, and is expected to continue growing for the foreseeable future. Additionally, most Wall Street analysts are bullish on the stock..
That said, the stock is not particularly attractively priced. As a result, investors might be prudent to patiently wait for a pullback before jumping into the stock.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
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