Is It Too Late to Buy Airbnb Stock?

Airbnb (ABNB 1.09%) posted its first-quarter earnings report on May 3. The short-term rental platform's revenue rose 70% year over year to $1.51 billion, which beat analysts' estimates by $60 million.

Its net loss narrowed from $1.17 billion to just $19 million, or $0.03 per share, which broadly beat analysts' expectations by $0.27. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $229 million improved from a loss of $59 million a year earlier, and also represented the first time its Q1 adjusted EBITDA turned positive.

Those headline numbers are impressive, but investors might be wondering if it's too late to buy Airbnb at these levels. The stock still trades at 13 times this year's sales and remains about 130% above its initial public offering (IPO) price. That price has stayed more or less flat over the past three months, even as rising interest rates and other macroeconomic headwinds ravaged higher-growth tech stocks. Let's dig deeper into Airbnb's business to see if it's still a worthwhile investment.

Image source: Airbnb.

How fast is Airbnb growing?

Airbnb's revenue declined 30% to $3.4 billion in 2020 as global travel ground to a halt during the pandemic. But in 2021, its revenue surged 77% to $6 billion as those headwinds waned. That post-lockdown recovery tracks with its year-over-year growth in nights and experiences booked, gross booking volume (GBV), and total revenue over the past year:

Data source: Airbnb. YOY = Year-over-year.

Airbnb's post-lockdown recovery made it a more appealing investment than other pandemic-era growth plays like e-commerce, remote work, and food delivery companies, which now face difficult year-over-year comparisons.

Airbnb's business model is also well protected from inflation. Budget-conscious travelers will likely stick with its short-term rentals instead of pricier hotels, while hosts will consistently rent out their properties to generate more passive income. Unlike Uber Technologies and Lyft, Airbnb doesn't have any exposure to rising fuel and labor costs. All those strengths shielded it from the broader sell-off across the tech sector.

Bottom-line growth is stabilizing

In 2020, Airbnb posted a whopping net loss of $4.6 billion and negative EBITDA of $251 million. But in 2021, net loss narrowed to $352 million and the company generated a positive adjusted EBITDA of $1.6 billion. Adjusted EBITDA margins have also stayed positive for five straight quarters:

Data source: Airbnb.

Airbnb's robust revenue growth and stabilizing margins boosted its free cash flow (FCF) 146% year over year to a record high of $1.2 billion in the first quarter. Its total cash, cash equivalents, marketable securities, and restricted cash also increased 41% to $9.3 billion.

A rosy outlook for the rest of the year

Airbnb expects its revenue to rise between 56% and 64% year over year in the second quarter. That estimate comes even as Russia's invasion of Ukraine continues to disrupt travel in Europe. In fact, the company pointed out that many of its users booked Airbnb rentals in Ukraine after the conflict broke out -- even though they didn't intend to actually travel there -- as a way to donate money to Ukrainian hosts.

As a result, roughly 600,000 nights were still booked in Ukraine during the first quarter for a total GBV of $20 million. That only represented 0.1% of its total GBV, but it demonstrates how Airbnb can weather geopolitical conflicts in more unconventional ways than traditional hotel chains. 

At the end of April, Airbnb already had 30% more nights booked for the summer travel season compared to the same time in 2019, and said its growth from that pre-pandemic year was "higher the further we look out this year." It also claims its guests are "booking more than ever before" and that they are staying longer in its properties.

As a result, analysts expect Airbnb's revenue and adjusted EBITDA to increase 38% and 50%, respectively, in 2022. They also expect that Airbnb will generate a full-year net profit of $1.21 billion.

It's not too late to buy Airbnb

Airbnb has been a reliable investment over the past several months because it is able to face many macroeconomic headwinds in adoesn't face any meaningful macroeconomic headwinds.

It still faces some regulatory challenges and competition from cheaper hotels and traditional online travel agencies, but its growth rates indicate it's withstanding those challenges. Airbnb has now become synonymous with short-term rentals, and that brand recognition could ensure that it remains an attractive alternative to traditional hotels for many years to come.

Its stock might seem a bit pricy right now, but I believe investors who accumulate more shares today will be well rewarded in the future.