Airbnb's (ABNB 1.54%) stock price has stayed nearly flat over the past six months, even as inflation, rising interest rates, supply chain disruptions, and Russia's invasion of Ukraine rattled higher-growth tech stocks.
The short-term rental services platform struggled during the early days of the pandemic as global travel slowed to a crawl, but it recovered quickly as lockdown measures were eased. Looking ahead, we can see four green flags that suggest that Airbnb could still have plenty of room to grow.
Image source: Airbnb.
1. Airbnb has had an impressive post-lockdown recovery
Airbnb's revenue declined 30% to $3.4 billion in 2020. Its gross booking value (GPV) plunged 37% to $23.9 billion, while its total nights and experiences booked tumbled 41% to 193.2 million.
But in 2021, Airbnb's revenue surged 77% to $6.0 billion as pandemic-related headwinds waned. Its GPV jumped 96% to $46.9 billion, while its total nights and experiences booked rose 56% to 300.6 million.
For the first quarter of 2022, Airbnb expects its revenue to rise 59%-67% year over year. Analysts expect its revenue to rise 32% for the full year.
That rosy outlook indicates Airbnb isn't ceding the market to traditional hotel chains (many of which have been reducing their prices) or smaller short-term rental platforms. It also suggests that regulatory headwinds -- such as bans on short-term rentals -- aren't curbing its growth.
NASDAQ: ABNB
Key Data Points
2. Airbnb's profitability is improving
On a generally accepted accounting principles (GAAP) basis, Airbnb's net loss widened from $674 million in 2019 to a staggering $4.6 billion in 2020, mainly due to $2.8 billion in stock-based compensation expenses related to its IPO. But in 2021, its GAAP net loss narrowed to just $352 million.
On an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, Airbnb posted its first annual profit of $1.6 billion in 2021, compared to adjusted EBITDA losses of $251 million in 2020 and $253 million in 2019. That big improvement, which CFO Dave Stephenson attributed to a strategy of "managing for profitability while investing for growth," gave it a full-year adjusted EBITDA margin of 27%.
3. Airbnb has an inflation-resistant business model
Airbnb's business is naturally insulated from inflation for two simple reasons. First, travelers with less spending power will likely gravitate toward cheaper Airbnb rentals instead of traditional hotels. Second, hosts who want to generate additional income will likely rent out more properties.
During Airbnb's latest conference call, CEO Brian Chesky pointed out that the company was founded during the Great Recession, which prompted many people to rent out their properties on Airbnb for "economic empowerment." Dave Stephenson said Airbnb's hosts had earned about $150 billion to date, and that it would remain a "great way to earn additional income going forward."
4. Airbnb's premium is justified
Airbnb's stock might not seem like a bargain at 12 times this year's sales. After all, Expedia (EXPE 0.05%) and Booking Holdings (BKNG 2.51%) -- which both offer short-term rentals along with their hotel and flight listings -- are expected to generate comparable sales growth this year but trade at single-digit price-to-sales ratios.
However, Airbnb arguably deserves that higher valuation because it's established an early mover's advantage in the short-term rental space. It's also gradually expanding its ecosystem with more hosted experiences and boutique hotel listings. This niche market could continue to expand as guests seek out unique experiences and hosts (both individuals and small independent hotels) challenge the big hotel chains.
Should you invest in Airbnb?
Airbnb is an ideal growth stock for the current market. Its profitability is improving, it's resistant to inflation, it benefits from relaxed lockdown measures, and its valuations are fairly reasonable. The unpredictable macro and geopolitical headwinds might limit its near-term gains, but I believe it's still a solid long-term winner.
