Airbnb (ABNB +2.90%), one of the most eagerly anticipated public offerings of 2020, was hit hard by the pandemic. The company mainly operates as a platform allowing homeowners to temporarily rent out their living quarters to travelers for a fee. Not surprisingly, shutdowns and social distancing have been tough for the company and the rest of the travel industry.
Can it overcome these tough times? Here we explore whether Airbnb is worth considering as an investment.
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A tough year -- but signs of longevity
Airbnb's revenue during the first nine months of 2020 took a hard hit in correspondence with the pandemic's spread. The company's sales were down 31.9% year over year, with its net loss ballooning by 183%. While this is certainly not ideal, considering its lofty price-to-sales ratio of 25 and its already large $85.9 billion enterprise value, it is somewhat understandable considering the circumstances.
Encouragingly, operations are slowly starting to recover. Gross nights booked for the company have improved from a decline of 72% year over year in April 2020, to down 23% year over year as of September. Furthermore, the total value of these gross bookings has improved from down 119% to down 17% during the same timeframe.
When looking more closely, two sub-categories for the company -- short-distance travel and long-term stays -- have enjoyed especially strong recoveries. There is a long way to go for the newly public company's complete comeback, but demand is moving in the right direction -- and that could feasibly continue.
Interestingly, Airbnb found success at the tail end of the financial crisis. Its ability to empower individuals to make extra income became more appealing amid that economic turmoil, and management believes the same will be true after COVID-19 as well. The company's forecasted 36% compound annual growth rate (CAGR) over the next five years is strong evidence of that anticipated recovery.
Economic turmoil will likely lead some to seek alternative streams of income -- and this is where Airbnb can help greatly.
A unique approach fosters new revenue opportunities
Airbnb prides itself on enabling travelers to explore the world with a more personal touch. While legacy hotels and resorts offer their consumers more of a cookie-cutter approach to travel, Airbnb does not. Its 4 million hosts provide 5.6 million active listings of all kinds, with the majority of the company's offerings unique to Airbnb's platform.
Additionally, the company calls on its hosts to not solely provide a place to stay, but also to help guests enjoy the city they're visiting. This allows travelers to more completely engage in any community and allows them to feel a greater sense of connection, according to the company.
CEO Brian Chesky is confident that Airbnb has only "scratched the surface" of this renting and sharing business model's potential. Hosts will always be at the core of Airbnb, and allowing those hosts to offer more services (and collect more money) is a clear goal for the company.
Now, it allows users to do much more than rent out a home or apartment to travelers. If hosts have a certain skill or talent that they want to share, they can do so using Airbnb's platform. This expansion optionality is ideal for organically powering sustainable growth over the long term -- something Airbnb will need to do.
To Airbnb or not to Airbnb
Airbnb has had a tough year, but for long-term investors, it still is worth exploring as an investment. Its track record of success in prior economic catastrophes bodes well for gauging its ability to bounce back after COVID-19. While we are by no means through the pandemic, Airbnb looks poised to emerge from difficult times capable of delivering strong stock returns for the long term.
