Investors took a quick liking to Airbnb (ABNB -0.02%) when the stock debuted in December 2020 and immediately bid the price higher. The first day of trading led to the price more than doubling from the $68-per-share debut price, and it hit intraday highs near $220 by mid-February 2021.

The stock had some ups and downs with each new report related to the COVID-19 pandemic and its economic effects, then started a somewhat bumpy decline beginning in November 2021. Clearly, Airbnb did not escape the bear market and the decline has taken its price below $87 per share at one point in late June. with the stock now trading near 52-week lows, prospective buyers are asking whether or not Airbnb is a buy now. Let's see if we can find an answer.

Airbnb's competitive advantage

Airbnb has succeeded as a business because it expanded the scope of the vacation rental industry. While it did not invent the industry, it provided the online tools necessary to make it easier for homeowners to rent individual rooms and spaces. Today, more than 4 million properties worldwide have become available on its platform.

Moreover, since it utilizes existing properties, Airbnb holds a key competitive advantage with its ability to add spaces without having to invest heavily in construction. It also expands that advantage by investing heavily in artificial intelligence (AI) and machine learning. This allows the company to use data science, engineering, and product design to enhance personalization, making the travel experience easier for its users.

Competition and bear market struggles

Nonetheless, the travel industry remains competitive, and Airbnb faces significant competition. Among these peers are Expedia subsidiary Vrbo, travel site Booking Holdings, and Google parent Alphabet. Competition from Alphabet seems particularly concerning due to its $140 billion in liquidity and its leadership position in data and AI.

Additionally, the company seems to have not timed its IPO well. At that time, the FDA had not yet approved a COVID-19 vaccine. Consequently, much of the country was in lockdown, and soon after the late-2020 IPO, Airbnb would report a 30% year-over-year revenue decline for 2020.

The stock recovered well as vaccines rolled out and the economy reopened and it was trading not far off previous highs when talk of inflation and potentially rising interest rates hit the market overall and initiated a steep and prolonged decline beginning in November 2021. Airbnb got caught up in the decline along with many other tech growth stocks. As of the time of this writing, Airbnb sells at a 55% discount to its February 2021 high.

Airbnb's improving investment case

Despite the downward stock movements, Airbnb's underlying business performance seems to be doing just fine. Airbnb benefits from pent-up demand for travel following lockdowns, and the financials appear to reflect the improved business conditions.

Revenue in the first quarter of 2022 reached $1.5 billion. That amounted to a 70% year-over-year increase that nearly matched the 77% increase in 2021. Airbnb also reduced its quarterly net loss to $19 million, down from nearly $1.2 billion in the year-ago quarter. Costs and operating expenses rose by only 14%, while interest and other expenses combined dropped by $715 million.

Moreover, free cash flow nearly doubled to $1.2 billion during that time. And the company expects year-over-year revenue growth of approximately 60% in the second quarter at the midpoint, meaning revenue growth should experience only a modest slowdown.

Furthermore, that falling stock price and improving revenue have dramatically lowered its valuation. At a price-to-sales (P/S) ratio of 9, its not yet fair to call the stock "cheap." Competitors such as Alphabet and Booking Holdings sport P/S ratios of six. Still, it has fallen considerably from the peak P/S ratio of 36 in February 2021. That discounted sales multiple could draw more interested investors, especially considering its revenue growth.

Is Airbnb stock a buy now?

Given its name recognition, AI investments, and massive revenue growth, Airbnb stock should beat the market over the long term. And thanks to the bear market, new buyers receive the benefit of being able to buy this stock more cheaply.

But with the macroeconomic uncertainty at the moment, investors should account for the possibility that the stock price has more room to fall. Considering the bear market and Airbnb's current valuation, more downside is possible. Still, Airbnb has undoubtedly carved out a lucrative niche, and the internet and direct-marketing retail stock appears well-positioned to benefit as more customers seek alternatives to traditional lodging options.