Spring is in the air, and people are itching to travel as COVID cases dwindle from their January 2022 peak. This past week, Mastercard and Visa reported better-than-expected earnings, partly due to a recovery in cross-border travel, an essential metric for both payment companies.
Mastercard said that as of March, cross-border travel is above 2019 levels for the first time since the pandemic began. And Visa CFO Vasant Prabhu observed that "pent-up demand for travel remains very high. And early indications on summer bookings, etc., as you heard from other people, have been very good."
With those positive signs for travel in mind, investors might want to look at Airbnb (ABNB -0.98%) stock. Here are two reasons why the vacation rental and experience company could rally from recent lows.
1. Airbnb's business is stronger than ever
While Airbnb has always been somewhat of a seasonal business -- users book more nights and experiences in Airbnb's second and third quarters -- there's been an overall shift in how people travel that allows the company to reap the benefits.
On Airbnb's last earnings call, CEO Brian Chesky noted how the company has benefited from the change in consumer behaviors due to the pandemic, saying, "We're in the midst of a revolution in travel because people have newfound flexibility in how they live and work." The flexibility has increased average trip length by approximately 15% over the past two years, with stays of more than seven days now representing nearly half of all gross nights booked.
The paradigm shift showed up in Airbnb's fourth-quarter 2021 results, which were its best ever in terms of revenue and net income. The company produced roughly $1.5 billion in revenue and $55 million in net income, up 38% and 115% from Q4 2019, respectively. Additionally, Airbnb has posted four consecutive quarters of free cash flow -- the cash which remains after all capital expenditures -- despite lower, overall travel than before the pandemic.
2. Airbnb stock looks cheaper than ever
Airbnb stock is down about 28% from its 52-week highs and off 11% year to date. To value a growth stock like Airbnb, investors typically look to its price-to-sales (P/S) ratio -- a company's market capitalization divided by its total sales over the past 12 months -- since it doesn't have positive earnings yet.
Recently, Airbnb traded at a P/S ratio of about 16, close to an all-time low for the company since it went public in late 2020. So while Airbnb's stock price is trading close to where it began trading at its IPO, its total sales increased 77% from 2020 to 2021.
Additionally, Airbnb has an outstanding balance sheet with over $6 billion in net cash, meaning it likely won't have to take out unfavorable loans in the higher interest rate market conditions of present. With that flexibility, Airbnb can continue investing heavily in product development -- it has spent more than $4 billion over the past two years -- to innovate with such product features as "'I'm Flexible," a way for guests who are flexible about where and when they're traveling to search for stays and experiences at lower prices. Since its launch, "I'm Flexible" has been utilized nearly 800 million times by users.
What could go wrong?
Airbnb, a de facto broker between guests and hosts, will likely always be reliant on its hosts to provide desirable accommodations for its guests. If the company cannot grow its host count, its revenue growth may be limited, as there are only so many locations where guests can stay. And since becoming public in late 2020, Airbnb has faced that exact problem, with its total hosts stuck at 4 million.
Management is well aware of this challenge and is taking measures to grow its number of hosts. Specifically, Airbnb began offering dedicated support to "Superhosts" -- the top-rated, most experienced ones -- with hopes of resolving guest-related issues faster. Additionally, the company recently began offering "Aircover" damage-protection and liability insurance of up to $1 million for every host to ease concerns. Airbnb hopes to "unlock the next generation of hosts" with these protections and incentives.
Is Airbnb stock a buy today?
By several indicators, the travel sector will see a boom this spring and summer, and Airbnb is one of many travel stocks well-positioned to benefit. Look to the company's first-quarter 2022 earnings on Tuesday, May 3, to see whether it has continued to benefit from a remote working environment and if it was able to grow its host count due to its new initiatives. If Airbnb sees success in those areas and management gives promising guidance for the rest of 2022, expect its stock to be wheels up in 2022 and beyond.