Investors in Airbnb (ABNB +0.67%) have had a volatile ride.
The tech company went public, pricing its stock at $68 per share during the pandemic in 2020. Since then, the stock tripled to $213 but later fell by more than 45% from that peak.
But with the stock price down significantly, is now an excellent time to load up on Airbnb?
Image source: Getty Images.
Airbnb survived the COVID crisis
The last two years were tough for most companies. With the COVID-19 virus spreading globally, countries had to go into extended lockdowns to control the spread. Such lockdowns were terrible for economies and businesses.
Operating in the vacation rental business, Airbnb took the hit directly. During the worst part of the pandemic (April 2020), bookings fell by 72% year over year. These cancellations resulted in a massive plunge in revenue and also caused enormous cash flow challenges as customers asked for refunds. The tech company ended 2020 with revenue down by 30% to $3.4 billion and a net loss of $4.6 billion .
Fortunately, the dire situation did not last that long. In 2021, Airbnb's revenue rose 77% to a record high of $6 billion -- significantly higher than the previous peak of $4.8 billion achieved in 2019. Net loss also narrowed to $352 million.
The quick rebound highlights the resilience of its business model, which is capable of handling highly volatile operating environments. More importantly, it showcases humans' need to travel and connect with others -- even amid the pandemic. Airbnb's first-quarter 2022 results further demonstrates the strength of its business model, with gross bookings and revenue up by 67%, and 70%, respectively.
In short, Airbnb has survived the pandemic well.
The external environment remains very challenging
Airbnb might have survived the pandemic, but it's too early for investors to declare victory, since other looming risks are ahead.
Topping the list is the growing inflationary environments thanks to the disruption in the global supply chain and higher commodity prices. In the U.S. alone, inflation hit 9.1% for the 12 months ended June 2022, which was the most significant increase since November 1981. A higher inflation rate means consumers must pay more for their basic needs, with a little left over for discretionary spending like travel and holidays.
And if that's not enough, the increasingly hostile geopolitical environment creates another impediment for travelers. For example, the Ukraine war would likely reduce global travel to affected regions. Consumers might also vote with their wallets by boycotting Russia and its allies. While we cannot precisely predict the precise impact of these developments, it's not hard to foresee that Airbnb's business would be affected. The only question is to what extent the impact will be.
Still, Airbnb's long-term prospects remain bright. The growing global tourism industry will continue to drive the tech company's long-term growth. But given the short-term macro challenges, it will not be an easy ride for investors.
Is Airbnb a cheap stock?
Another critical aspect to consider before buying Airbnb stock is the valuation. Ideally, we want to buy the stock when it's trading at a fair, if not cheap, valuation. Doing so will give us a margin of error, limiting our investments' downside.
As of this writing, Airbnb is trading at price-to-sales (P/S) and price-to-earnings (P/E) ratios of 10.4 and 92.6. The stock is not cheap if we consider that we can buy some of the best companies today at a much more reasonable valuation. For example, Alphabet is trading at P/S and P/E ratios of 5.7 and 20.7.
On a slightly positive note, Airbnb is trading at a much lower valuation today than a year ago. After all, its revenue grew by 77% in 2021, while its share price has almost halved from its peak of around $213.
So is Airbnb a buy?
Overall, my gut feeling toward Airbnb is mixed. On one hand, it weathered the pandemic period well, and the long-term prospects look bright.
But on the other hand, the short- to medium-term could be challenging for the company. It would be tough for a company that survived the pandemic to suffer another significant blow. Moreover, with so many great companies trading at an even cheaper valuation, it is hard to justify paying up for Airbnb.
In all, I don't think the stock is a buy today. At best, it's a hold for those who already own the stock.
