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Should Airbnb Investors Climb the Wall of Worry?
Stock Analysis & Ideas

Should Airbnb Investors Climb the Wall of Worry?

The initial enthusiasm around Airbnb’s (ABNB) recently released impressive second quarter performance was quickly watered down when the company warned about the repercussions of the Delta variant of the coronavirus.

The company, in line with its peers, expressed concerns that the impending third wave of the pandemic is highly likely to cause travel jitters. This is evidently expected to result in a sequential decline in Airbnb’s Nights and Experiences Booked and gross booking value (GBV) in the third quarter of this year. (See Airbnb stock charts on TipRanks)

Nonetheless, Needham analysts led by Bernie McTernan remained bullish on the company’s prospects, reinforcing a Buy rating. He even increased the price target to $200 from $194, arguing that the travel industry is bound to get back on its feet as the fear of the Delta variant subsides.

“We see the return of travel combining with ABNB’s high-quality, unique marketplace leading to share gains. We are bullish on margin expansion, as we foresee customer acquisition costs falling,” said McTernan.

He noted that Airbnb has been generating better profitability since its IPO in December last year. The company also witnessed an increase in active listings for the first time since the pandemic started.

Another encouraging point to note is that the travel industry is gradually recovering across the globe. Airbnb recorded notable growth in European cross-border bookings in June. Moreover, Gross Nights Booked in popular tourist destinations like Istanbul, Las Vegas, and Sao Paulo, was back to pre-pandemic levels .

Buoyed by these fundamentals, McTernan increased his estimates for GBV, revenues, and adjusted EBITDA for 2021 as well as for 2022.

The analyst believes that Airbnb is well poised to benefit from the pent-up demand for travel, which is expected to be released after the economies reopen. The company has also been gaining share in the hospitality industry as more people are trying out the service, as observed by McTernan.

Importantly, the company proved to be quite adaptable and resilient to disruptions, as it successfully acquired customers with much lower marketing costs during the pandemic. This strengthened the analyst’s confidence in the company. McTernan stated, “We are bullish on the potential for a steeper profitability trajectory post-pandemic relative to marketplace peers.”

The Wall Street consensus is cautiously optimistic about the stock, with a Moderate Buy rating based on 13 Buys versus 8 Holds. The average Airbnb price target of $179.10 implies 17.2% upside potential to current levels.

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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