Though Airbnb (ABNB 1.08%) shares may have fallen 30% over the past six months, most analysts are growing more bullish on the growth stock recently. Following the company's earnings report last week, three analysts reiterated buy ratings on the stock and increased their 12-month price targets. In addition, one analyst who lowered his 12-month price target for the stock still reaffirmed an outperform rating for shares.
Are analysts onto something? Let's take a look at the vacation rental website's recent business performance and the stock's valuation to see whether this stock may be worth considering investing in.
Momentum is back
2020 was brutal for Airbnb. The company's revenue plummeted 30% year over year to $3.4 billion as nights and experiences booked fell 41%. The pandemic wasn't kind to the company as COVID-19 had a significant negative impact on the travel industry.
Fortunately, Airbnb's business started making a comeback in 2021. First-quarter revenue rose 5% year over year to $887 million and nights and experiences booked climbed 13% year over year. But nights and experiences booked were still notably down 21% from levels two years ago.
Still, the company's growth story increasingly seems to be back. Revenue in the second quarter grew sequentially to $1.3 billion as nights and experiences booked rose 197% year over year -- coming in nearly at the same levels they were in the same quarter two years ago. Management also provided an optimistic outlook for the third quarter, guiding for its highest quarterly revenue ever -- "well above 2019 levels."
A reasonable valuation
While Airbnb's business seems to be rebounding nicely from the pandemic, its stock has floundered recently. Fortunately, this means shares are trading at reasonable -- if not attractive -- prices.
At first glance, Airbnb's $93 billion market capitalization might seem too high of a price for a company that is still reporting losses on its income statement. But Airbnb's two most recent quarters show the company's financial strength during more normal times. Its first- and second-quarter free cash flow, or cash from operations less capital expenditures, was $487 million and $784 million, respectively. Of course, the company does benefit from seasonally high free cash flow during the first half of the year. But this free cash flow is notably far higher than the $277 million and $121 million of free cash flow Airbnb reported in the first and second quarters of 2019, respectively.
Airbnb is also reporting strong adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Second-quarter adjusted EBITDA was $217 million. While revenue recovery played a role in the metric swinging from negative $397 million in the year-ago period to substantially positive levels, management said "a significantly improved cost structure" helped, too.
With Airbnb demonstrating strong cash flow and a scalable business model, a $93 billion market cap doesn't seem too expensive for a growing company with an annual revenue run rate of greater than $5 billion.