Why Airbnb Is a Home Run Stock

Airbnb (ABNB 1.04%) made it through the pandemic on even better financial footing than before it started. In this clip from "The Rank" on Motley Fool Live, recorded on March 21, Fool.com contributors Connor Allen, Jason Hall, and Matt Frankel discuss the company's enormous growth potential over the next several years.

Connor Allen: So, Airbnb is a company that gets me back to a thought process that I've had in the past. Where when something is so evident, and obvious to you that this is a growing industry in a growing market. Sometimes that's what it is and you don't need to overthink anymore about it.

For example, in 2020 with Zoom (ZM 0.82%), it just seemed too easy to me. I was like buy Zoom. It just seemed too simple and too easy, so I didn't actually go and do that. Now, granted at the time that I thought this I might be down now since it's a $35 billion market cap but it's the same thing here with Airbnb, is that it's a growing market.

There is an enormous market potential for them here as far as taking market share away from hotels and toward Airbnbs. For example, I don't think corporations have really started paying for Airbnbs instead of hotels for a lot of their employees. I think that could be a major opportunity for them in the future.

Also, their CEO, Brian Chesky, I love him. He's a great follow on Twitter. That's not the only reason that I like him, but I think he's making great decisions. They had $2.2 billion in free cash flow last year. Their revenue is up significantly, growing over pre-pandemic levels. Here are some numbers: Airbnb experienced a 153% global compound growth rate since 2009. It's pretty incredible. I understand that this is basically starting at zero. Those numbers might be a little bit skewed. I don't expect that to continue into the future.

Also, another thing is I think Airbnbs are more affordable. They make more sense for a lot of people. I think there is some room for some problem solving for Brian Chesky and Airbnb with a lot of the fees that are involved. I think those need to be more transparent when you're booking a room but a lot of times in Europe, for example, Airbnbs range from 8-17% cheaper than the same region's hotels.

Average daily rate in certain U.S. markets, I'm not sure which markets, Airbnbs can range between 6-17% cheaper than hotels. Especially when you think about family vacation and family traveling, Airbnbs make so much more sense than cramming everybody into a hotel. Especially for the vacation industry, Airbnb will be a huge success in there.

Like I said at the beginning, it's right in front of my face. It's something that I see growing, it's something that you can witness. It's something that I'm partaking in myself when I go on vacations. It's very evident to me that this company is going to continue to grow and grow well.

Jason Hall: I mean, it's a category creator basically, it's not really because VRBO [part of Expedia (EXPE 0.15%)] has been around for, I think a little bit longer. But in terms of the pure play, it's certainly the one that they have really hit on such a cord that's resonated with so many travelers.

Anecdotally, I'll just tag on to what you were talking about there Connor. We travel, we use Airbnb almost exclusively. Very rarely do we do a hotel if there is an Airbnb option in the same area that we're traveling to. It's just so much easier. This weekend I went to Northern New Hampshire to see another Fool Tyler Crowe who's staying in an Airbnb. We're going to be staying in another Airbnb.

I don't think it's necessarily disrupting the hotel industry, but it's just such a huge platform that only a small percentage of total hotel stays globally shifting to Airbnb can make it just an enormous business. It can make it an enormously profitable business.

The biggest risk, I think we should talk about to me is, that they don't control the actual products, the product that people are paying for. The consistency of what people get can be very different from one place to the next. That's a risk to the business that could make it harder to grow at some point at scale but I think that even with that risk, it should still be the dominant platform for a very long time. Matt?

Matt Frankel: I think that's also one of its biggest strengths. Its addressable market opportunity is literally every house in the world.

Hall: Right.

Frankel: Not only that but all these adjacent experiences you can book along with it. For example, if you book a vacation house in Florida on Airbnb, you can also book a snorkeling trip while you're at it, that's for sale in Airbnb or something like that.

Hall: Right.

Frankel: Restaurants could partner with Airbnb to get people in the door and things like that. They're a bunch of different directions they could take the adjacent revenue streams in. I think this one is going to be a home run. Spoiler alert. I have an article publishing tomorrow about what I think the ten largest stocks are going to be in 2035 and Airbnb is on that list.