According to The World Travel and Tourism Council, U.S. travel and tourism spending could contribute $2 trillion to GDP this year, which is higher than 2019 levels. This marks a major comeback in travel spending as people around the world crave a getaway, which means that this year should be a busy one for travel and tourism companies.
One hospitality company poised to benefit from this recovery is Airbnb (ABNB +0.72%). Considering its stellar first-quarter performance, the company is already showing promise. Looking further out, Airbnb is a great company to buy and hold for the long term, because it is building a new industry standard for travel. It's also converting its top-line expansion into cash flow for investors, which puts the company in a great position to thrive going forward.
Image source: Getty Images.
Thriving on its uniqueness
Airbnb is known for its unique listings, which include treehouses, igloos, and even a potato in Idaho. More than the unique locations, however, Airbnb has other traits that set it apart from traditional hotel and hospitality companies. The first is that long-term stays are commonplace on Airbnb. In the first quarter, stays of 28 days or more were Airbnb's fastest-growing category by trip length, more than doubling from the same period in 2019. Now, they make up over 20% of gross nights booked on the platform.
This ability to stay -- or even live -- in an Airbnb for a long time has been difficult for traditional hotel chains to replicate, giving the company a major advantage. It is a leading platform for long-term travelers, and considering more people can now work from anywhere, this advantage could grow even more powerful.
NASDAQ: ABNB
Key Data Points
The company also has an advantage when it comes to non-urban areas. Airbnb has listings in very remote places, whereas traditional hotels primarily have locations in urban or suburban areas. The company is seeing demand increase for its urban listings, but having this wide array of offering allows Airbnb to capture a larger share of vacationers. And it has done just that: In the first quarter, non-urban nights booked soared 80% on a two-year basis.
This differentiation has allowed the company to bounce back swiftly from the pandemic lows in travel demand. The company reached its highest-ever activity levels in the quarter with 102 million nights and experiences booked during the period.
A jaw-dropping quarter
Airbnb's differentiated product has allowed the company to shine financially. Revenue skyrocketed 70% year over year last quarter (and 80% on a two-year basis) to $1.5 billion. What's even more remarkable is that Airbnb's growth is outpacing that of some of the larger, more established travel companies. Expedia, for example, saw a 58% year-over-year jump in its gross booking value. Airbnb, however, grew booking value 67%. This shows that Airbnb's brand and reputation are attracting more activity than competitors during this period of high demand.
Other highlights of the company's first quarter included its profitability and cash flows. The company lost $19 million, but that's a major step up from the year-ago period and first quarter of 2019 when Airbnb saw net losses of $1.2 billion and $292 million, respectively. Airbnb also posted free cash flow of $1.2 billion, representing a staggering free-cash-flow margin of 80%.
This high cash generation might not be sustainable for the long term, but it shows Airbnb is successfully turning adoption into tangible cash. It can then use this to reinvest into the business or reward shareholders. Either way, investors should be thrilled about how efficiently the company is generating cash.
Why Airbnb is worth buying now
One of the drawbacks of this increased demand for travel in 2022 is hospitality companies might face a supply shortage. However, Airbnb doesn't see this as a threat. The company has over six million active listings on the platform. Even if it did face shortages in specific regions, the company's "I'm Flexible" feature would allow it to point consumers to where supply is available.
The company trades at 30 times free cash flow, which is appealing compared to stocks like Mariott International and Booking Holdings, which trade at 57 and 36 times, respectively. Airbnb's multiple is at an all-time low given the impressive cash generation in the first quarter, and with its top line bucking the bearish trend of so many other growth companies, the stock is very appealing right now.
Airbnb has built its platform to be more versatile, optionable, and unique than the competition, and that has led to amazing success over the past few years. With its current valuation and continued strength, I plan on buying more, and you might want to consider doing the same.
