What happened
Shares of vacation rental company Airbnb (ABNB +1.07%) lost 21% of their value in May according to data provided by S&P Global Market Intelligence. The company delivered a stellar earnings report at the beginning of the month, but the market is having trouble valuing the stock.
So what
Airbnb made a bold move by going public at the height of its pandemic declines in December 2020. But the market was exploding at that time, with investors hungry for initial public offerings (IPOs), and Airbnb's was the largest IPO of 2020 by funds raised.
Image source: Airbnb.
It launched on the markets with a high valuation despite its sales decreases, ending the first day of trading at $139. It's only demonstrated an incredible rebound since then, but growth stocks have been losing favor as interest rates rise and inflation put a pause on some spending.
In the first-quarter report, released at the beginning of May, there was continued progress, both in its rebound and in its capabilities in providing alternative vacation ideas. Revenue increased 70% year over year (YOY) to $1.5 billion, and nights booked increased 59% YOY. Net loss of $19 million was an improvement over a $1.2 billion loss last year and a $292 million loss the year before, and it comes after two quarters of profits.
As a platform, the company is agile and can lean into the parts of its business that meet demand in certain times or situations. That's why it has been so successful despite travel disruptions. People itching to get out of their homes have found ways to explore the world with Airbnb's accommodations in domestic and nonurban areas. They're also embracing the shift to remote work and living or spending long times at Airbnb rentals. Stays of 28 days or more have been the highest-growing category for several consecutive quarters. The company is stepping up to the plate, offering more flexible search functions and rolling out a summer upgrade after a winter upgrade a few months ago. At the same time, travel is starting to recover, and Airbnb is also benefiting from a return to more traditional modes of travel in typical urban locations.
Now what
Many growth stocks that were flying high as the market soared last year haven't been able to support their nosebleed valuations as the economy turns volatile, between decelerating sales growth and mounting losses. Airbnb, however, has a different status, as growth is still robust, and it's beginning to post profits. That means it still deserves some kind of premium.
Shares are down 30% this year, and they trade at 10 times trailing-12-month sales. That's not cheap, but investors should expect a lot from this monster growth stock for years to come.
