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Why Airbnb Stock Soared 10% Today

By Rich Smith – Aug 24, 2021 at 4:31PM

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The vacation rental specialist is offering free, temporary housing to Afghan refugees.

What happened

Shares of Airbnb (ABNB -6.26%) closed up 10% today after Reuters reported that the company has offered to provide free, temporary housing to 20,000 Afghan refugees worldwide.

So what

As a business move, this has pluses and minuses. Airbnb won't be making any money from facilitating free rentals, and it will rely on donations from CEO Brian Chesky and its charity to fund the project. On the other hand, the positive PR that Airbnb will earn from this move is invaluable.  

Meanwhile, beyond PR, Airbnb got some good news yesterday when analysts at DA Davidson reiterated their buy rating and $174 price target on the stock. Second-quarter results at the housing facilitator were "strong," and Q3 looks on track to be Airbnb's "strongest revenue quarter ever," with revenue likely to top what Airbnb collected even in Q3 2019, before the pandemic struck.  

Arrow moving up on a green stock chart with a map of the world in the background.

Image source: Getty Images.

Now what

The big question now is: Should you buy it?

At $101.5 billion in market capitalization, even with roughly $5 billion in net cash lowering its enterprise value to $96.5 billion, Airbnb still sells for a lofty valuation of 64 times trailing free cash flow of $1.5 billion. On the other hand, analysts are broadly in agreement with DA Davidson that Airbnb has a lot of room to grow, and the consensus seems to be that Airbnb will more than double its free cash flow over the next four years.

Still, that works out to "only" about a 22% compound annual growth rate in free cash flow (and an enterprise value-to-free-cash-flow-to-growth ratio of about 2.9, which is kind of high). It's worth pointing out that when calculated according to generally accepted accounting principles (GAAP), Airbnb remains an unprofitable company.

Long story short: While Airbnb is getting good press today and deserves praise for its good deed -- and appears to be racking up high marks as a growth company -- Airbnb stock is not yet an obvious bargain.

Rich Smith 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.

Stocks Mentioned

Airbnb Stock Quote
$92.34 (-6.26%) $-6.17

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

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