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Should You Invest in Airbnb in 2022?

By Jeff Santoro – Jan 7, 2022 at 3:20AM

Key Points

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Airbnb's strong growth and appealing valuation make it worth a look in 2022.

Airbnb (ABNB 2.93%) has become a household name in the world of travel. For both travelers in search of places to stay and hosts who offer their homes to guests, Airbnb has become the go-to service. Because it's been around since 2007, it's easy to forget that Airbnb is still new to the public markets, just past the one-year mark of its December 2020 IPO. In the past year, shares have been volatile, trading as high as $220 and as low as $130. As we enter 2022, investors may be wondering what the future holds for this popular business. So should you invest in Airbnb in 2022? Let's dig in and find out.

Heading in the right direction

When Airbnb reported earnings for the third quarter, the results were impressive. The market responded accordingly, and shares jumped 13% the next day, starting an upward trend that lasted until the tech sector sell-off began in mid-November.

A person reading a book on balcony with coffee at her side.

Image source: Getty Images.

As the chart below shows, revenue, net income, and free cash flow rose 67%, 280%, and 58%, respectively, compared to Q3 of 2020. These financial results were driven by customers using the platform. Nights and experiences booked increased 29% year over year and gross booking value (GBV), which is simply the dollar value of bookings, increased 48%. Over the year, as we were all adjusting to various versions of pandemic restrictions and reopenings, users relied on Airbnb for travel.

Airbnb has also become a more efficient business. In Q3, gross margin hit a high of 87%, and the company's total costs and expenses as a percentage of revenue dropped from 69% in Q3 of 2020 to 62% in the second quarter of 2021. It's a good sign for investors when businesses can grow revenues rapidly while also keeping costs under control.

ABNB Free Cash Flow (Quarterly) Chart
Data by YCharts.

A shift in travel

One of the more interesting trends that Airbnb is seeing is the number of long-term stays of 28 days or more being booked on the platform. These types of bookings represented 20% of gross nights booked in Q3 of 2021, up from 14% two years prior in Q3 2019. Additionally, 45% of bookings in this last quarter were for seven nights or more. This is obviously a great trend for the company, but also for its hosts, who need to do well to see value in being on the platform. To that end, hosts earned $13 billion in income in Q3 2021, increasing 27% from Q3 of 2019.

Airbnb also sees the shift to remote and hybrid work as a driver for its business. With the ability to work from home, more people are able to travel while still working. With remote workers no longer confined to weekend travel, Airbnb has seen Mondays and Tuesdays become their highest days of the week for travel. 

An evolving platform

Airbnb takes an active role in improving its platform for both hosts and guests. At the Q3 earnings report, the company had already rolled out more than 150 upgrades to its platform. In early January, CEO Brian Chesky even took to Twitter, asking what the company could do to improve in 2022. After receiving 4,000 responses, he posted the top six suggestions and stated that the company is working on all of them. Granted, a few tweets aren't an investment thesis, but it does show management's willingness to hear from its customers and respond accordingly.

After the incredible run-up, Airbnb saw in the months following its IPO, valuation was absolutely something investors needed to consider. However, as we begin 2022, Airbnb's price-to-sales and price-to-free cash flow ratios are 19 and 62, both near all-time lows since it went public. Airbnb has almost never been this inexpensive to buy. For investors who believe in the Airbnb growth story, now is a great time to invest.

Jeff Santoro owns Airbnb, Inc. The Motley Fool owns and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.

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