Investors have mixed feelings about Airbnb's (ABNB 1.17%) stock in 2022. On the one hand, the company benefits from consumers unleashing pent-up travel demand after two years of delayed vacations.
On the other, fears of a recession brought on by rising inflation could dampen travel spending after the burst of pent-up demand exhausts itself. Unfortunately, the pessimists are winning out as Airbnb's stock is down 39% year to date. Let's look at the green and red flags in more detail.
Green flag: Pent-up demand for travel
The coronavirus pandemic forced people to delay traveling for nearly two years. Even if people felt comfortable getting on planes, government restrictions made it inconvenient. As a result, Airbnb's revenue fell by 30% in 2020. Overall, spending on hotels and resorts fell to $610 billion in 2020. That was down from $1.5 trillion in 2019.
ABNB Revenue (Annual YoY Growth) data by YCharts
That figure rebounded to $950 billion in 2021 but was still far below the figure from before the outbreak. Despite the measured rebound in travel spending, Airbnb's revenue exploded by 77% in 2021. It's likely to jump further in 2022 as consumers unleash pent-up demand for travel.
In the first quarter of its fiscal 2022, ended on March 31, Airbnb reported a revenue increase of 70%. The company is scheduled to report second-quarter results on Aug. 2, where analysts on Wall Street expect Airbnb will report a revenue increase of 57%.
Reg flag: A recession could lead to less travel
Beyond the next quarter, Airbnb's prospects could be challenged. The coronavirus pandemic has snarled supply chains worldwide, combined with sustained robust consumer spending, which has given rise to an ugly bout of inflation. Central banks have begun raising interest rates judiciously to control inflation by slowing economic activity.
US Core Consumer Price Index YoY data by YCharts
Unfortunately for Airbnb, as inflation pinches consumer budgets (paying more for food and energy leaves less to spend on discretionary items), one category folks might cut back on is travel. So far, people have weathered the inflationary storm relatively well. Consumers have more savings due to several rounds of fiscal stimulus and a hot job market. However, wages are not keeping up with inflation, and if higher prices persist, people's savings accounts will deplete, meaning budget cuts will be necessary.
That scenario would be a red flag for Airbnb, to be sure. In my opinion, the fears of the recession's adverse impact on Airbnb appear overblown. Pent-up demand for travel could partly offset the effect of a recession, should the economy enter one in the next few quarters. At these fallen prices, it's no time to panic and sell Airbnb stock.
