If there were any travel winners during the pandemic, Airbnb (ABNB 1.43%) would top them. Yes, sales dropped 30% year over year in 2020, but during that awful time, the company managed to score the biggest initial public offering (IPO) of 2020 by market cap. And in the 2021 first quarter, sales began to build again, growing an impressive 5% year over year.
There are reasons to be concerned about the stock, specifically its valuation. But if you're on the fence about buying Airbnb stock, I'll give you three reasons to move toward a yes.
1. Resilience is an attractive feature in a stock candidate
Think about the pandemic winners: Companies such as Target and Costco are obvious essentials companies that had their best quarters in years during the pandemic, and newer companies such as Etsy and Fiverr offer innovations that are becoming indispensable in the digital age.
But other companies that struggled are bouncing back in a big way, such as Starbucks and Nike, and that's another form of resilience. Surviving under pressure is a telling indication of solid management and a dedicated customer base, and those are traits of a company with strong long-term growth potential.
Airbnb falls into that category as well. Growth is already positive, even though travel is still constrained, and that's due to several features of its model that make it more agile than traditional travel companies. It offers a broad range of prices and services, remote locations and communities, and both are a preferred option for more types of vacations, such as longer-term stays. That was an important growth driver in Q1, when stays of more than 28 days increased 14%. Nights booked at rural stays increased from 32% in the summer of 2019 to 42% for summer 2021.
Of course, it also appeals to traditional travelers, opening it up to a larger market. That leads to the next point.
2. Travel trends are improving
Since Airbnb's first-quarter report, travel has continued to show signs of picking up. Vaccines are getting rolled out, now topping 2.6 billion doses, or 34 per 100 people worldwide, as of this writing. That's unevenly distributed, and it's double for countries such as the U.S., Airbnb's strongest market, and most European countries.
For example, as the European Union has eased traveling restrictions, Airbnb searches there are increasing. During the week of May 18 to May 24, European searches grew 31% year over year.
While any travel company should benefit from these trends, Airbnb can definitely take a chunk out of travel spending, for the reasons mentioned above and others. It's working on recruiting more hosts, and it recently made more than 100 modifications to its program to improve its service. As it recruits more hosts, it can offer more spots and take in more money without investing in costly buildings or other infrastructure.
3. The valuation isn't as bad as you think.
Airbnb shares trade at 23 times sales. That's expensive, but significantly lower than many other growth stocks, such as Lemonade at 64 and Fiverr at 35. Airbnb's price is just slightly up year to date, which makes sense considering its valuation and the current travel environment. But the price is slowly creeping back up as investor confidence increases.
If you think Airbnb has a compelling growth story and that travel is coming back, now's a great time to consider adding shares of Airbnb stock to your portfolio.