The trillion-dollar market capitalization might seem like an insurmountable goal to target. Yet, several companies, including Apple, Microsoft, and Alphabet, have achieved the feat. And in the case of Apple and Microsoft, a couple of times over.
So what are the chances of a young public company like Airbnb (ABNB -0.85%) to reach a trillion-dollar market cap by 2030? Let's look at its prospects below.
Airbnb meets the prerequisite for a $1 trillion market cap
As of this writing, Airbnb boasts a respectable market cap of $105.7 billion. To reach a trillion, it needs to grow nearly 10x from here. Fortunately, Airbnb operates in the massive travel and resort industry. One of the prerequisites to get a trillion-dollar market cap is that the market the company addresses must be large enough to absorb giant businesses.
Indeed, the global hotel and resort industry was worth $1.5 trillion in 2019. The market size indicates a broad base of consumers spending a meaningful part of their income on the service. Airbnb's task is to grow to take a larger share of that consumer spending. In 2021, gross booking value, which measures the value of bookings on Airbnb, increased by 96% to $46.9 billion. Of course, the growth was exacerbated because it is compared to 2020 when travel was muted due to COVID-19.
Still, gross booking value on Airbnb was up 23% compared to 2019, before the onset of the pandemic. Meanwhile, the hotel and travel market has only recovered to 65% of 2019 revenue. The difference between the recovery at Airbnb and the overall market shows Airbnb is grabbing a more significant share of consumer travel spending. That's good news for its prospects over the long term.
Impressively, Airbnb has gained share while expanding profit margins and free cash flow. The trailing-12-month free cash flow increased in each quarter of 2021, culminating in $2.1 billion in the fourth quarter ended Dec. 31. Airbnb's asset-light business model is inherently built to generate free cash flow. As a middleman that brings together hosts and travelers, taking a commission for its service, it avoids the significant capital expense of building and maintaining expensive properties.
Sustaining revenue growth could be key for Airbnb
Airbnb stock is trading at a price-to-sales ratio of 17.28. Keeping that price constant, Airbnb would need to grow revenue to $56.8 billion by 2030 to reach a market cap of one trillion. In 2021, Airbnb's revenue totaled $6 billion, so it would need to grow at a compound annual rate of 28.4% for nine years to reach $56.8 billion. Considering that Airbnb has grown at 42.6% in 2018, 31.6% in 2019, 77.4% in 2021 (2020 is excluded because of pandemic disruptions), it seems reasonable to expect it can grow at 28% for each of the next nine years.
So to answer the question posed in the headline, Airbnb has a decent chance to reach a trillion-dollar market cap by 2030.