Please ensure Javascript is enabled for purposes of website accessibility

Is Airbnb a Solid All-In Stock for 2021?

By Zhiyuan Sun - Jun 24, 2021 at 8:51AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Now is the time to buy the dip on shares of the world's most iconic vacation rental platform.

Airbnb (ABNB -1.77%) stock has deeply enriched investors' pockets over the past year, with a return of 120% since its December IPO. However, shares have fallen 30% from the all-time highs in February due to concerns regarding the emergence of dangerous coronavirus variants hindering global travel.

The temporary setback gives investors a rare opportunity to gain access to an otherwise high-flying tech/travel company at a fair price. Here's why you can put all your eggs in one basket when it comes to Airbnb stock. 

Family staying at a vacation rental.

Image source: Getty Images.

What's with the appeal? 

Since its inception in 2007, Airbnb has welcomed over 900 million guest stays in almost every country across the world. The company's value proposition is pretty huge as it allows travelers to stay in a home far away from home with full amenities (Wifi, fully stocked kitchen, pet friendly, etc.). Guests get more comfort than traditional brick-and-mortar hotels can offer and at a fraction of their cost.

But the genius part is that Airbnb introduces a symbiotic relationship with the existing hotel/vacation rental industry instead of simply disrupting it. Hotel, resort, campground, or bed and breakfast managers can list their properties directly on Airbnb to cater to a vast audience on its platform. The business model is highly scalable, as Airbnb merely takes a commission fee from guests' bookings.  

Is the stock overvalued? 

Right now, Airbnb stock is trading at roughly 17 times price-to-sales. That's pretty expensive for a company that only grew its revenue by 5% year over year to $882 million in first-quarter 2021. Simultaneously, its operating income less non-cash expenses (EBITDA) is still in the red at negative $59 million. That number did, however, improve by $275 million over Q1 2020.

Luckily, Airbnb's management is anticipating a massive revenue rebound as vaccination campaigns gain momentum worldwide. Its platform's gross booking value is already exceeding $10 billion per quarter from properties run by over 4 million hosts in 100,000 cities worldwide -- and growing. On a side note, that number is up 52% year over year due to increased long-term rentals. 

About 150 million people booked a property via Airbnb last year. It already accounts for over 20% of vacation rental markets in countries like the U.S. This makes the company well-positioned to ride the rebound in global travel. The company lost nearly 54% of its expected revenue due to the coronavirus, so there's definitely colossal growth potential up ahead. 

But perhaps the biggest benefit the pandemic had for Airbnb was giving it a straight path to profitability. Recently, company management discovered that they could slash marketing expenses to a very low level -- and rely only on the strength of its brand to generate revenue.

Indeed, about 90% of traffic on its platform did not originate from advertisements. That's a pretty major discovery as the company currently spends about $228 million per quarter (or 25.7% of sales) on marketing. I believe that Airbnb could easily attain its goal of achieving 30% EBITDA margins (instead of negative 6.7% at the moment) in the near future by cutting costs in this segment.

Time to go all-in? 

Airbnb is also doing a great job capital management-wise with nearly $6.4 billion in cash and investments to offset just $1.8 billion in long-term debt. Overall, due to a strong brand moat, high scalability, and a clean balance sheet, Airbnb stock is a safe bet to move all-in. The company's growth is on the verge of a breakout due to a travel backlog and could witness upwards of 60% to 80% year-over-year increase -- which is more than enough to justify its valuation multiples. Therefore, it is a high-flying tech stock you don't want to miss. 

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Airbnb, Inc. Stock Quote
Airbnb, Inc.
$117.11 (-1.77%) $-2.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.