The market's wild swings over the past few months are giving investors the opportunity to find great stocks on sale. They also mean that stocks are still tanking, and watching your highest-conviction stocks plunge in price can be both confusing and scary. But if you keep your eye on the goal and choose stocks with strong fundamentals, you can get great deals that should gain in value over time.
Airbnb (ABNB -1.52%) is one stock that's posting dramatic growth at the same time that its share price is falling, giving investors a great opportunity to buy a monster growth stock on sale.
Image source: Airbnb.
Leading the new way to travel
Airbnb is not your grandfather's travel company. It doesn't own or operate any hotels or transportation services; rather, it manages a platform that matches hosts and travelers. As simple as that sounds, it has exploded in popularity as skies begin to open again.
It has a powerful combination of leading through innovative travel solutions as well as benefiting from traditional travel. That has fueled its business in these challenging times, giving it strong future growth potential.
For traditional travel, it's still out of the box. It doesn't operate any hotels, but instead provides a medium to facilitate vacation rentals for vacationers. That was its main growth driver prior to the pandemic. But times have changed drastically over the past two years, and it's uniquely positioned to benefit from changing travel, and even living, habits.
Airbnb is working with several developing trends, such as non-urban vacationing and work-from-home shifts. In the first quarter, non-urban gross nights booked continued to grow from pre-pandemic levels, increasing 80% as compared with the 2019 first quarter. Long-term stays were still the fastest-growing category, reaching record levels in the 2022 first quarter.
And even as these remain an important element of the company's business, other categories are coming back. Urban gross nights booked increased 80% year over year, outpacing the 2019 first quarter. Cross-border gross nights more than tripled year over year, nearing pre-pandemic numbers. Short-term stays also rebounded year over year.
Airbnb's ability to grow its platform as an asset-light business has also contributed to its success. It offers rentals in 100,000 cities, which is unmatched by any hotel operator, and it ended the first quarter with more than 6 million active listings.
The overall numbers tell a compelling story. Revenue increased 70% year over year to $1.5 billion, and nights and experiences booked increased 60%. The company's net loss of $19 million was a big improvement over $1.2 billion last year. These numbers easily exceed 2019 performance, and Airbnb is way past a pandemic rebound.
Why is the stock down?
In some ways, this is a no-brainer stock to own. At the same time, there are concerns to monitor, mainly the stock's high valuation. Airbnb shares launched on the stock market with a high valuation. Even at the current price, which is down 34% this year and 24% since its first-day closing price, it trades at 59 times forward-year earnings.
It's one of a group of formerly high-flying growth stocks that investors couldn't get enough of, but whose valuations ballooned beyond reason. Now, these have plummeted for the most part, and Airbnb has fallen in lockstep. Some of these growth stocks are bleeding cash, with losses mounting, even as they see their growth rates sharply decelerate.
Airbnb stands out because its revenue growth is still robust, and losses have been either narrowing year over year or turning into income. Per-unit variable costs have decreased as the company gets bigger -- and as it enters the busy summer season, management expects revenue as a percentage of gross booking value to increase.
With growth still so strong, there's some premium on Airbnb stock that's justified. At this price, investors should consider buying.
