Is Airbnb a Steal Now?
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Originally Posted On: https://summamoney.com/investing/the-ivy/is-airbnb-a-steal/
Many companies struggled through the pandemic, especially those in the travel industry. In 2020, travel restrictions were strict, and while many limitations remained intact throughout 2021, Airbnb proved they could weather the storm. Airbnb has a unique advantage compared to large hotel groups and the increases in vacation rentals available on its online marketplace prove the point.
Airbnb can meet demand whenever, wherever — such as quaint little towns — which is why nights booked in non-urban locations increased 45% year over year in the fourth quarter.
The pandemic drove specific trends that fueled greater growth heading into the fourth quarter, including longer stays and increased domestic travel. Nearly half of the nights booked in the fourth quarter were for a week or longer, and 20% were for a month or longer. Overall, the average trip length increased by 15%. These variables resulted in another record quarter, with 2021 being the company’s best year in history, despite the global pandemic.
So, what about revenue? Airbnb (NASDAQ: ABNB) recently posted its third-quarter earnings, which has many investors wondering, is now the time to buy ABNB shares? After all, total revenue increased 78% year over year and 38% over the 2019 fourth quarter, resulting in a record $55 million.
The Future Looks Bright for Airbnb
In 2021, Airbnb remained committed to innovation, designing over 150 upgrades to its platform — many of which are exclusive to Airbnb. The company’s Hosts community is larger than ever, yielding six million active listings at the end of 2022. Also, many guests are no longer just traveling on Airbnb; they’re living on Airbnb. By the end of Q4, over 90% of active listings accepted stays of 28 days or longer.
So, investors are thinking, if Airbnb is performing this well during a global pandemic with travel restrictions in place, what’s next? When travel is completely open, how will that influence the company’s already impressive figures?
Airbnb is exceptional at providing customers with top class experiences. The company has demonstrated that it can pivot quickly. Its business model – making accommodation available without owning it – allows it the flexibility to thrive in downturns and scale up to meet demand during economic upswings.
For 2022, Airbnb management has listed three areas of focus:
- Enable people to live anywhere using Airbnb
- Attract and unlock the next generation of enthusiastic hosts
- Position Airbnb as the ultimate host
What About the Risks?
Some investors are still wary of Airbnb, especially growth investors. Yes, the company is thriving, and there’s plenty to be excited about. However, ABNB share price sits somewhat unchanged near the same price level at which it came public on December 20, 2020.
Airbnb’s market capitalization sits under $100 billion at the time of writing. It is currently valued at roughly 18 times this year’s expected sales. There are hefty expectations with a valuation like that, and the risk of volatility increases.
Although Airbnb is certainly a strong brand, there are some concerns surrounding regulatory movement in the European Union and how that will affect vacation rental companies. There is also plenty of room for disruptive new competitors in the years ahead, possibly limiting the company’s growth trajectory.
All that said, based on Airbnb’s performance and earnings, the company has plenty of room to grow into its valuation.
It’s Been a Bumpy Road – What’s Next?
Since Airbnb’s IPO at the end of 2020, ABNB stock has been on a volatile journey. Skeptics argue that the price rose too quickly. But if you look to the fundamentals, they have been impressive. The company has continued to adapt and innovate within a category of travel it essentially created.
The company’s own commentary highlights how disruptive the times we live in are, and further confirms how impressive it is for a travel company to thrive during lockdowns: “We are amidst the biggest change to travel since the advent of commercial flying.”
There are plenty of reasons to consider buying Airbnb stock. The company is now active in over 190 countries and showcases an impressive growth rate, supporting its position as a company that’s changing the way people find rent accommodations around the globe.
To summarize, Airbnb has shown significant financial growth and profitability, continues to innovate, and meets the needs of travelers through growth and flexibility. There is no doubt that Airbnb is a fantastic business and an exciting one at that. However, it’s important to remain mindful of ABNB’s valuation. This stock isn’t cheap, and there are potentially regulatory risks on the horizon, so depending on your risk tolerance, it may be best to watch this stock for now.
If you’re ready to take the plunge, it may be best to use dollar-cost averaging to help reduce the risks involved, especially since investors can expect more volatility ahead.