Like many travel stocks, Airbnb (ABNB +0.68%) had a rocky ride in 2020. Nonetheless, the company decided to go public late last year, and shares jumped over 200% from the initial offering price within the first three months of trading. The stock has recently fallen back, down almost 25% from its all-time high.
Airbnb is seeing phenomenal growth compared to 2020, but some investors are concerned the success it is having this year will not last. While near-term results are uncertain, the company's long-term growth potential points to dominance in the travel industry thanks to three competitive advantages.
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1. Unmatched uniqueness
Have you ever gone onto your typical hotels site to find a yurt or a treehouse to live in while on vacation? The chances are slim, but on Airbnb, unique stays are commonplace. You could even spend the night in a dome in Maine if you'd like. The company is able to offer these one-of-a-kind experiences because of its focus on host satisfaction.
Airbnb says "hosts will be at the center of Airbnb," because they are the foundation of the company's platform. To attract hosts, the company tries to make its service simple and easy to use. In the most recent shareholder letter, Airbnb said, "[W]e've seen the time to complete a listing on Airbnb decrease by more than half for the majority of new hosts," thanks to new tools and resources it rolled during the second quarter.
Management also saw growth in the number of active listings on its platform during the quarter, partially driven by an 8% sequential increase in "active listings in non-urban destinations in Europe and North America." For clear evidence of the company's ongoing recovery, nights and experiences booked increased 197% year over year to 83.1 million (that figure was flat compared to the second quarter of 2019). Airbnb expects this metric to be volatile going forward, but the company would only have to grow nights and experiences booked another 3.4% from this latest quarter to set a new company record.
2. The go-to place for long-term stays
Airbnb also succeeds in another travel category: long-term stays. About one-in-five nights booked during the second quarter came from long-term stays, which the company defines as 28 days or more. And 50% of nights booked were for stays lasting seven days or longer. Because of COVID-19, many people working remotely have decided to venture out from their home offices, and they're looking for exciting new places to work -- and live -- for weeks or months at a time.
The company expects this to trend to continue: 81% of Airbnb users who booked long-term stays in the second quarter said they intend to do so again in the coming year.
3. Strong financial resilience
Airbnb has shown financial fortitude during the pandemic too. Now, it is set to reach a new all-time high on its top line. Second-quarter revenue increased 10% to $1.33 billion compared to the same quarter in 2019. Booking Holdings -- another leader in the online travel space -- hasn't been nearly as successful bouncing back. Its second-quarter revenue was down 44% on a two-year basis.
For its near-term guidance, management said in the shareholder letter, "While the COVID-19 pandemic creates ongoing uncertainty for our future results, we expect Q3 2021 revenue to be our strongest quarterly revenue on record and to deliver the highest adjusted EBITDA dollars and margin ever."
Airbnb has also been able to increase its average booking value per night, which rose 38% from the second quarter of 2019 to $161.45. Its unearned fees -- revenue from consumers who have already booked a trip and paid but haven't checked in yet -- also grew, up 41% to $1.48 billion over the same period. The company is not consistently profitable -- it lost $1.27 billion in the first half of this year -- but it also pumped out $1.27 billion of free cash flow.
Expectations are high
The main concern for investors is the valuation: Airbnb is trading at 23.2 times sales. Compared to Booking -- which trades at just 14.1 times sales -- the market has much higher expectations for Airbnb.
So while the company expects some ups and downs during the next few quarters due to pandemic-related uncertainty, the stock is also likely to experience volatility going forward. But Airbnb has set itself apart in the travel industry with the most popular platform for home-sharing experiences, and this leading position can help sustain its growth long term.
