At first glance, Airbnb (ABNB -1.12%) might look like an expensive stock, with a market cap of about $120 billion and a valuation of more than 20 times sales. But don't be fooled -- this is a massively disruptive company that has the potential to dominate its market.
Recent results show that travel demand is soaring and the market is absorbing the recent inflation nicely. Here's a rundown of where Airbnb's business stands today, and why this could become a trillion-dollar business over time.
Airbnb: Where things stand now
To call Airbnb's growth impressive wouldn't do it justice. The travel disruptor has evolved from literally three air mattresses in one of the co-founder's apartments (this is where Airbnb gets its name) into a massive travel-booking platform that's currently seeing about $45 billion in annualized booking volume.
Recent growth has been impressive as the world continues to gradually return to normal. In the fourth quarter, there were 73.4 million nights and experiences booked on Airbnb's platform. This was 59% higher year over year, although it's still a bit lower than pre-pandemic levels. However, because average costs per night have increased substantially, Airbnb's revenue in the most recent quarter is up by 38% from comparable 2019 levels.
Not only is the growth impressive, but Airbnb has a clear path to profitability. The company isn't consistently profitable yet (although it was in the fourth quarter), but losses have narrowed considerably, and the company generated $1.5 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2021.
There's reason to believe that 2022 will be a great year for the business. Airbnb reported that at the end of January, there were 25% more nights booked for Summer 2022 travel than in comparable pre-pandemic times. When you combine this with a 20% increase in average nightly rates, you have a recipe for serious growth.
Future potential is massive
It might sound like $45 billion in annualized booking volume is a huge number -- and that's because it is. However, it's important to put this into perspective, as the vacation-rental industry still has plenty of potential properties that aren't yet on the platform. In fact, Airbnb estimates that the global market for short-term rentals is about $1.8 trillion.
If you include adjacent experiences, as well as long-term vacation rentals (Airbnb's fastest-growing segment), the market is estimated to be a staggering $3.4 trillion in size. And it's worth pointing out that this was at the time of Airbnb's IPO (over a year ago), so it doesn't take the recent rise in average nightly rates into account.
Airbnb has roughly 1.3% of its addressable market opportunity today. It's never going to get close to 100%, but the point is that there's room for Airbnb to multiply its reach many times over.
What would it take for Airbnb to become a trillion-dollar business?
To be clear, there's no set-in-stone recipe that will produce a trillion-dollar market cap. Of the companies that are currently in this category, there are a variety of combinations of profitability, growth, size, and valuation.
Reaching the trillion-dollar market-cap club would require Airbnb's stock price to rise to just over 8x its current value, and there's certainly enough room in the market for the company to increase its business by 8x, given enough time. If it can do this and become consistently profitable in the process, Airbnb could join the trillion-dollar club within the next decade or so.