The number is 193.2 million. That's how many nights and experiences were booked via Airbnb (ABNB 0.19%) in 2020, a year like no other.
Sound like a huge number? It is. Even so, the figure was down 41% from 2019. With vaccinations against COVID-19 rolling out, travel will start to come back this year. Airbnb carries a premium price tag that reflects this rebounding travel and vacationing expectation, but this stock is nonetheless worth keeping on your radar.
A business model for the future of travel
Despite the pandemic in 2020, Airbnb's business proved incredibly resilient. The 193 million individual bookings were spread over 4 million hosts and 54 million guests -- and the latter figure is still small potatoes given the hundreds of millions, if not billions, of regular travelers around the globe. That 41% decrease in bookings resulted in just a 30% decline in revenue to $3.4 billion in 2020.
Image source: Getty Images.
The wide gap between the two was perhaps attributable to recent changes in fees assessed Airbnb hosts -- which some argue favor the largest hosts on Airbnb's platform -- and a larger fee for "experiences," which runs at 20%, versus the standard host-only fee of 14% to 16%.
Granted, an evolving fee structure has caused some hosts to cry foul. This isn't a perfect business model. With tens of millions of users, not everyone is going to be happy. Nevertheless, Airbnb represents a modern take on travel that brings some "democratization" to the hospitality industry. Property owners and local guides can find a new audience on the site and monetize their real estate like never before.
And it's not just the standard vacation that's getting attention, either. Airbnb said long-term stays and close-to-home travel were areas of particular interest during the pandemic. As the company has expanded its platform and knocked down barriers to business ownership in hospitality, its name is even getting turned into a common noun or verb ("Getting an Airbnb," is like saying "Google it" when referring to internet search).
All of the above help demonstrate the pent-up demand for vacations that's brewing, and a big increase in bookings and revenue could be on the way for Airbnb in 2021 and beyond.
A premium price tag for your consideration
Granted, this stock is no slam dunk. As Airbnb is growing synonymous with travel in some markets, investors are onto the potential. The 193 million bookings and $3.4 billion in revenue last year currently equates to a market cap of nearly $113 billion as of this writing -- or an enterprise value of $108 billion if subtracting cash and equivalents on balance and adding in debt (including the new $2 billion in convertible notes recently issued).
From a valuation standpoint, this is incredibly steep. Free cash flow was negative $667 million last year, so investors are left with the price-to-sales ratio to get some relative value perspective. And with the company trading at 33 times trailing-12-month sales, shareholders expect Airbnb's financials to rally -- and then some -- in the next couple of years.
For the sake of comparison, Booking Holdings (BKNG 1.75%) stock trades for just under 15 times 2020 sales -- based on 2020 gross bookings value of $35.4 billion (down 63% year over year), revenue of $6.8 billion (down 55%), but negative free cash flow of just $201 million. Some would argue that Booking Holding's stock has also gotten ahead of itself on an expected travel boom, so Airbnb trades at a premium.
Nevertheless, Airbnb is poised to benefit in an outsized way as the world begins to reopen this year. I expect this to be a bumpy ride, given the steep premium and uncertain trajectory of the travel rebound, but Airbnb's 193 million bookings in the midst of last year's pandemic and global economic freeze is impressive.
If you buy, keep an initial purchase very small so you can purchase more over time. But at the very least, add this stock to your travel-rebound watch list.
