Airbnb (ABNB 1.43%) went public late last year to much fanfare. The stock has traded wildly, up as much as 50% above its IPO price in February before coming back down to earth like a lot of high-growth companies have been lately.
With shares now trading below the opening price on its first trading day and after reporting a solid Q1 earnings result, is it time to take another look at Airbnb stock?
Earnings look solid
On May 13 Airbnb released its Q1 earnings, which gave some insight into a time period where some of the regions around the world were getting vaccinated. There were 64.4 million nights booked in Q1, up 13% versus 2020 but still down 21% from 2019, showing that the travel industry was still feeling headwinds from COVID-19 in January, February, and March.
Moving toward the income statement, Airbnb's gross payment volume was $10.3 billion in Q1, up 3% from 2019, with revenue of $887 million, up 6% from two years ago. Net loss was over $1 billion in the quarter, but that was from a ton of one-time expenses and non-cash charges. Airbnb was actually cash flow positive in the quarter, so investors shouldn't worry about the long-term profitability of the platform, the unit economics are sound.
Management didn't give specific guidance for the rest of 2021, but it did mention in the shareholder letter that its main focus right now is to get as many hosts as possible onto Airbnb and to make the booking process for guests as easy as possible. These may seem like obvious goals, but it shows that the company is actually worried the 5.6 million listings on its platform are keeping its supply constrained, indicating that it thinks demand will skyrocket over the next year or so. Time will tell if it is correct on this prediction.
Growth opportunities abound
The majority of Airbnb's growth can come from a rebound of the global travel industry, which should slowly recover when more and more people get the COVID-19 vaccine worldwide. Looking at some of the anecdotes from Airbnb and elsewhere, all indications are that travel spend will be red hot this summer and beyond. For example, for people aged 60 and up in the U.S., searches for summer trips grew 60% between February and March on Airbnb, when most of this demographic was scheduling or first getting access to the vaccines.
Airbnb is also seeing people book trips for longer times, with some almost living on Airbnb at this point. In Q1, 24% of nights booked were for trips 28 days or longer compared to only 14% in 2019. In fact, on the conference call, CEO Brian Chesky shared that in New York City, the majority of nights booked are now for trips 28 days or longer. This is an interesting development and shows how Airbnb might be evolving from just a travel platform to a living one.
On another note, at its recent product announcement, Airbnb said it was trying to beef up its experiences feature. New "nearby experiences" pins have the potential to help more travelers find things to do on Airbnb. It is also rolling out arrival guides for guests, which can help travelers find experiences they'd want to do, curated to certain areas.
But what about the valuation?
Airbnb currently has a market cap of around $86 billion. With $3.4 billion in trailing-12-month sales, the stock trades at a price-to-sales ratio of 25.3. This is a premium valuation even relative to other high-growth companies, but investors should remember that the trailing financials are depressed due to the travel shutdowns last year. Going forward, if Airbnb can accelerate growth coming out of the pandemic, this valuation could come down rather quickly. Airbnb also has high gross margin (71.3% last quarter), indicating it will have strong profit margin once it stops investing for growth.
Airbnb is no doubt on the riskier side of the investment landscape with its high valuation and management's big bet on a travel rebound. But if you are confident in this business going forward, there's no reason to shy away just because the trailing sales multiple looks high.