As a poster child of the sharing economy, Airbnb (ABNB 2.77%) has always been a Silicon Valley darling. With high-profile backers like Andreessen Horowitz and Tiger Global Management, Airbnb became one of the world's most valuable start-ups just seven years after its founding.

So it was no surprise when Airbnb made a monster market debut last year even as other travel players struggled to survive the pandemic. Airbnb shares hit $220 in February, more than triple its listing price.

But since then, Airbnb shares have shed 40%. The stock now trades at $131, the lowest since December 2020. Like many high-risk, high-reward stocks, Airbnb has fallen out of favor among value-oriented investors. But for the stock's many fans, is this a chance to buy the dip? Let's find out.

Family of four playing in the pool.

Image source: Getty Images.

The bull case

The pandemic has been bad for businesses everywhere. But it's been especially difficult for companies relying on people leaving their homes. According to the World Travel & Tourism Council, the travel industry suffered a $4.5 trillion loss last year due to COVID.

At first, Airbnb looked more vulnerable than ever. Lockdowns slammed the brakes on bookings, which plunged 72% year over year in April 2020. At the height of the pandemic, Airbnb had to raise emergency cash and slashed a quarter of its staff. These actions proved decisive, helping Airbnb bounce back from what CEO Brian Chesky called the "most harrowing crisis of our lifetime." Airbnb ended the year with $3.4 billion in revenue, down 30% year over year. That was pretty good -- considering Airbnb had expected revenue to more than half in 2020.

In the first quarter of 2021, revenue rose 5% year over year to $887 million, handily beating Wall Street expectations. Airbnb attributed this to a 35% increase in overall average daily rates, as most of its bookings were in the United States (which tends to have higher daily rates). The company also experienced fewer cancellations than in the year-ago quarter.

As restrictions get lifted and vaccinations roll out, Airbnb expects a "significant travel rebound" in 2021. New Airbnb use cases that emerged during the pandemic -- such as remote work -- also look here to stay. In the long run, Airbnb has plenty of room to grow. Despite being a household name in the global travel industry, it's captured less than 1% of its total addressable market.

All told, Airbnb has what it takes to be a post-pandemic winner. But this doesn't mean investors should rush in just yet.

The bear case

The reality is that the pandemic is far from over. In the U.S., there are still tens of thousands of new cases every day. Although there's a clear trend of declining new cases since vaccinations got under way, we are still months away from reaching herd immunity -- if at all.

Herd immunity is the idea that if 60% to 70% of the population gains immunity to COVID-19, we can stop the virus in its tracks. According to Nature magazine, some experts believe we may never hit the herd immunity threshold. And even if we do, there's the risk that deadlier new mutations may emerge, or that the vaccine loses its efficacy.

In other words, COVID-19 may not be going away anytime soon. And that's not good news for the economy or the travel industry.

While the virus is under control in the U.S., it has reemerged in many countries. New daily cases in India are at an all-time high, and many countries have yet to vaccinate even 1% of their populations. International travel will likely be restricted until most countries reach herd immunity -- a process that could take years. So even if domestic travel recovers, global travel could be subdued for a long time. 

What does all this mean for Airbnb? For one, it might be years before Airbnb returns to high, double-digit growth. And that's a concern because the stock has always been seen as a hyper-growth tech play. Even after its recent decline, Airbnb trades at 25 times 2020 revenue. Booking Holdings (BKNG 2.05%) -- Airbnb's biggest rival -- trades at 16 times sales. At this valuation, Airbnb looks even pricier than Palantir Technologies, a hyper-growth stock that grew revenue by 47% in 2020.

Clearly, the market hopes Airbnb will eventually fulfill its grand ambitions. But if it fails to deliver high growth in the short- and medium-term, investors could lose their patience.

Is Airbnb a buy now?

There's much to like about Airbnb. Its business model has proven to be resilient, even during the pandemic. Beyond bed-and-breakfast, Airbnb has the potential to disrupt the entire travel industry.

But its sky-high valuation is a deal-breaker. Until Airbnb starts trading at a more reasonable price, I'll be staying away from this stock.