Airbnb Inc. (ABNB), also known as Airbnb, is an American marketplace for lodging and homestays. It was first realized in 2007 when the founders hosted three guests in their home in San Francisco. Airbnb was founded in 2008 and has grown exponentially since.
Today, it’s the most well-known online lodging marketplace and offers a variety of experiences, including those in homes, cabins, and more. ABNB became a publicly-traded company in December 2020.
I am neutral on Airbnb as it has a strong competitive position, a promising long-term growth runway, Wall Street analysts are generally bullish on the stock, and the average price target implies substantial upside over the next year. On the other hand, the valuation multiples are sky-high, making the stock a speculative bet on substantial continued growth for the foreseeable future.
Strengths
Airbnb’s growth is no secret. It may have started in 2008 with two bookings, but today, it boasts over 5.6 million Airbnb listings, over 4 million hosts, and over 1 billion guest arrivals. It also operates worldwide and has listings in more than 100,000 towns and cities. In March 2015, it gained worldwide recognition for becoming the official alternative accommodations provider for the Olympics (2016 Rio Games).
One of Airbnb’s major strengths is its sustained fortitude, despite being affected by the COVID-19 pandemic. Because earnings were being affected, Airbnb launched Online Experiences and continued its growth. It even established an Enhanced Cleaning Protocol to give both guests and hosts peace of mind at the height of the pandemic.
Additionally, Airbnb has capitalized on diverse offerings and doesn’t just offer traditional homes – its offerings also include luxury villas, boats, treehouses, and castles, making it unique from other lodging websites.
Recent Results
Airbnb’s Q3 financial results were especially significant considering the continued impact of the COVID-19 pandemic. The Q3 2021 revenue totaled $2.2 billion. This just wasn’t just higher than Q3 of 2020 – in fact, it was their highest revenue ever. The revenue was 36% higher than that generated in Q3 of 2019 and almost 70% higher than the revenue generated in Q3 of 2020.
The company’s Q3 2021 net income of $834 million was also their most profitable ever and almost quadrupled from last year. Its adjusted EBITDA also surpassed $1 billion for the first time.
Valuation Metrics
ABNB stock is very difficult to value as it trades at very high valuation multiples but is growing rapidly with considerable competitive advantages. Its forward enterprise-value-to-EBITDA ratio is 54x times, and its forward price-to-normalized-earnings ratio is 234 times.
Long-term, the company has massive growth potential thanks to its massive network advantage and immense total addressable market. Analysts expect the company to grow revenue by 23.7% in 2022 after seeing it surge 75% in 2021, while EBITDA should grow 21.2% in 2022 after exploding by 711% in 2021.
Wall Street’s Take
According to Wall Street analysts, ABNB earns a Moderate Buy consensus rating based on 10 Buys, 16 Holds, and one Sell rating assigned in the past three months. Additionally, the average Airbnb price target of $195.44 puts the upside potential at 23.1%.
Summary and Conclusions
Airbnb possesses an enviable competitive position in the hospitality space. It has a substantial presence in thousands of regions across the globe that large hotel chains cannot hope to match.
Furthermore, it operates a very capital-light business model that enables it to generate high returns on invested capital and makes it very nimble and innovative.
Last but not least, its online presence positions it well for the future and enables it to appeal to millennials, a generation that is becoming increasingly dominant in the U.S. economy.
That said, while analysts are generally bullish on the stock and the average price target implies good upside over the next year, the stock’s valuation multiples are far too high to consider it a safe bet at this time. As a result, investors should view the stock as speculative at these levels and might want to wait for a pullback in the share price before initiating a position.
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