Shares of short-term rental property platform Airbnb (ABNB 1.43%) are down 49% from their all-time high as of this writing. But I'm afraid there's far more to this story than that. Airbnb stock has made a move of 15% or more 12 different times since it became a public company, exhibiting extreme volatility for a company of this size.

Here's what Airbnb's volatile stock price means for investors right now, and here's also why you should care.

The extreme numbers

To contextualize this story, keep in mind Airbnb has a market capitalization of about $70 billion right now. This means it's one of the largest public companies out there -- anything over $10 billion is already considered a large-cap stock

Investors have historically turned to large-cap stocks for their stability, but that hasn't been true of Airbnb. Despite its size, it behaves much like a smaller stock with 12 separate moves of 15% or more since going public less than 18 months ago.

  Starting price (date) Ending price (date) Percentage move
1 $68.00 (12/10/20) $144.71 (12/10/20) 113%
2 $144.71 (12/10/20) $124.80 (12/15/20) (16)%
3 $124.80 (12/15/20) $163.19 (12/22/20) 31%
4 $163.19 (12/22/20) $139.15 (1/4/21) (15)%
5 $139.15 (1/4/21) $206.35 (2/26/21) 48%
6 $206.35 (2/26/21) $131.88 (7/19/21) (36)%
7 $131.88 (7/19/21) $207.21 (11/15/21) 57%
8 $207.21 (11/15/21) $138.41 (1/27/22) (33)%
9 $138.41 (1/27/22 $186.64 (2/16/22) 35%
10 $186.54 (2/16/22) $131.59 (3/7/22) (29)%
11 $131.59 (3/7/22) $177.02 (4/4/22) 34%
12 $177.02 (4/4/22) $106.00 (5/24/22) (40)%

Historical prices from Yahoo! Finance. Chart by author.

Financial results from Airbnb have been much less volatile. The company has reported quarterly results six times since going public and has surpassed analyst expectations each time. But the stock price has seen wild swings nonetheless.

What Airbnb's volatility means

There's no reason to overcomplicate one of the biggest problems with Airbnb stock -- the market simply can't decide what it thinks the company is worth.

You can make an argument Airbnb stock should have a premium (expensive) valuation. The company estimates its total addressable market at $3.4 trillion, and yet it's only generated $6.6 billion in trailing-12-month revenue. In other words, it has far less than 1% of its market, even though it's the emerging leader in the space. This suggests a long runway for growth going forward.

Moreover, Airbnb is a two-sided marketplace business, which means the business model is asset-light and has a mouth-watering free cash flow (FCF) margin of over 40% for the past 12 months.

Travelers greet their hosts as they approach a house.

Image source: Airbnb.

On one hand, Airbnb seems worthy of a premium. On the other hand, even a world-class business can be overpriced. The same applies to Airbnb -- there is a price that's too high.

Here's an argument to the downside right now: stock-based compensation (SBC). Consider that while the company's FCF is impressive, Airbnb is paying out hundreds of millions of dollars' worth of SBC and could still grant billions more, according to filings with the Securities and Exchange Commission. SBC doesn't affect FCF since it's a non-cash charge, but it does affect potential shareholder returns, since your piece of the pie gets smaller as more shares are issued to Airbnb's employees.

There are more things we could add to Airbnb's bull case, and there are certainly additional concerns. But what we've seen so far is illustrative of the tug of war -- the market doesn't know how to value Airbnb stock.

Why investors should care

Airbnb is a pronounced example of how the stock market fundamentally works. In the classic investing book The Intelligent Investor, author Benjamin Graham gave the stock market the name "Mr. Market." But Mr. Market has violent mood swings and, therefore, changes prices everyday. Investors can choose to reject or accept his offers today and come back tomorrow.

I challenge you to predict the moods of your closest loved ones next week. I believe you'll find it to be an impossible task. How much more impossible is it to predict the sentiment of the stock market next month or next quarter? There are too many unknowns to do that.

For this reason, I encourage investors -- whether Airbnb shareholders or shareholders of other stocks -- to hone their skills of ignoring market volatility. Rather, individual investors should focus on fundamental business results, and they should determine whether the stock price makes sense for their intended holding periods.

I knew Airbnb was a pricey stock when I bought shares near their highs. I also recognize shares could fall much further from here in the near term. However, I also remain convinced Airbnb can be generating substantially higher profits in a decade compared to what it generates now as it exploits its market opportunity. And I believe it has significant competitive advantages, meaning I'm comfortable with a longer holding period.

In short, Airbnb stock makes sense for me given my time horizon. And as long as the business performs as it has, I'll keep holding through the fluctuating emotions of Mr. Market.