Despite a 45% drop in its stock price year to date, Airbnb (ABNB 2.77%) has been thriving. The online lodging marketplace has a growing foothold in the travel market, seeing 102 million nights and experiences booked on its platform in first-quarter 2022 alone.
As investors dig deeper, Airbnb looks even more appealing. There are wide-reaching concerns about many stocks in the travel industry, but Airbnb looks like it could withstand some of these worries. With travel demand rising over the long and the short term, here's why Airbnb could prevail and perform better than its peers in the space.
Image source: Getty Images.
1. Travel demand is rising
After multiple years of tamped-down travel, U.S. consumers are itching to go on a vacation this summer. The U.S. Travel Association found that travel spending in May was at a record high since the start of the pandemic. AAA also predicted that 48 million Americans traveled for the July 4th holiday, which was only 2% below 2019 levels. While this has yet to be confirmed, this could mean that July travel will be even busier than May.
So far, Airbnb is capitalizing on this surging demand. In Q1 2022, the company saw $17.2 billion spent on bookings, which was 73% higher than the same period in 2019. This jump in bookings value helped the company generate $1.2 billion in free cash flow, representing a 79% free cash flow margin in the quarter. This jaw-dropping margin is unlikely to last the entire year, but it shows how well Airbnb can capitalize on high demand.
More importantly for long-term investors, the outlook for travel spending over the next several years is also moving in Airbnb's favor. By 2026, The U.S. Travel Association predicts that travel spending will reach $1.26 trillion (adjusted for inflation). This represents 20% growth from 2022. $970 billion of this is expected to come from leisure, while business travel in 2026 is estimated to be below 2019 levels.
Considering that Airbnb thrives on leisure activity, the company could benefit from this rise. But what sets Airbnb apart from its rivals?
2. Airbnb has few supply constraints
Because of how hot travel might be in the coming few quarters, many investors have worried about hospitality companies having constrained supply in some areas, especially cities and vacation hotspots. Airbnb, however, has more than 6 million active listings to combat this challenge, along with multiple features that help mitigate supply bottlenecks in any specific region.
For users who don't have a preferred vacation spot, the "I'm Flexible" feature allows Airbnb to promote regions and stays that have more availability. This has helped users find homes to stay in -- ones that they might not have even thought of looking for -- over 2 billion times.
Airbnb also has a "categories" option, another way to search for vacations (other than by using locations). If someone wants to do a specific activity or have a home with a certain style, Airbnb can find stays to accommodate that while promoting regions that might not be in high demand.
These features allow Airbnb to push demand to where supply is, which significantly eases these bottlenecks that most hospitality companies face.
3. Satisfaction is higher than its peers
If there's one thing that Airbnb has struggled with, it has been inconsistency in product quality. This is understandable given that Airbnb does not directly operate homes on the platform, but it has resulted in volatile customer satisfaction. However, many of the company's rivals struggle with the same issue.
Airbnb is actually one of the leaders when it comes to customer satisfaction, according to Net Promoter Scores (NPS). Other third-party platforms like Vrbo and Booking.com (BKNG 2.05%) have scores lower than Airbnb: Booking's NPS is 25, while Vrbo's is negative 83, with only 7% of respondents thinking highly of the business. By comparison, Airbnb's NPS is 31, with more than half of respondents promoting the company and less than a quarter negatively affecting its score.
Is Airbnb a buy now?
Given Airbnb's edge over its rivals, the company looks like it could thrive in both the short and long term. While this is no guarantee, the company has continued to innovate and develop new features. When looking at its Q1 results, these innovations seem to be paying off.
Additionally, Airbnb is trading at a bargain today. At 21.6 times free cash flow, the company trades at a substantial discount compared to traditional hospitality stocks like Marriott International (MAR 0.96%) and Hilton Worldwide (HLT 0.97%).
All of this combines for an appealing investment right now, and you might want to consider adding this thriving business to your portfolio.
