The "revenge travel" phase of the recovery has come and gone. Most of us have taken the vacations we had to postpone in 2020 as a result of safety concerns and travel restrictions. With the global economy sputtering and inflationary pressures making essentials a priority, it's easy to see why cruise line stocks, air carriers, and other tourism stocks have sputtered.
Investors have also checked out of Airbnb (ABNB 0.75%). The stock is trading for roughly half of what it was fetching when it peaked shortly after going public less than two years ago. The stock started to recover from the lows it hit in June, but analysts began slashing price targets on Airbnb last month after the July rally fizzled out. Can this week's gains stick this time? An analyst initiating coverage of the stock with a bullish rating is an encouraging start to the rally for one of the more misunderstood travel stocks.
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Home is where the art is
Bernstein analyst Richard Clarke picking up coverage with a bullish outperform rating is a welcome sight. It's the first time in five months that a major Wall Street firm note wasn't a downgrade or a price target being revised lower. He sees the addressable vacation rental market as larger than his peers are modeling, and he feels that Airbnb can capture a 37% share of that $150 billion market. It isn't likely to end at lodging, as Airbnb is well positioned to book other travel categories given its growing audience.
Airbnb should have a long tail to grow at a compounded annual growth rate of more than 15%, and its valuation has gotten more palatable as the shares move lower and its revenue keeps widening. At its peak in early 2021, Airbnb was trading at more than 40 times trailing revenue. Today that multiple is in the high single digits. Value investors aren't going to call that cheap, but Clarke rightfully argues that the stock's valuation is no longer a deal-breaker. His price target of $143 implies 28% upside from Wednesday's close.
There's a lot to like when it comes to Airbnb's scalable asset-light business model. With 4 million hosts offering a whopping 6 million listings on its site, the network effect is on display here. Property owners flock to where the seekers of vacation properties are, and Airbnb booked more than 205 million nights through the first half of this year. There's some serious money to be made as the middleman. We're talking about $7.4 billion in trailing revenue, tripling over the past five years.
A lot of travel-related businesses have yet to return to their pre-pandemic states, but Airbnb has blasted through its 2019 results. Revenue rose 73% in its latest quarter compared to the same period in 2019, a combination of a 24% uptick in nights booked and the even more promising 40% three-year surge in average daily rates.
Airbnb is also now profitable on a trailing basis. It's a moneymaking machine. Free cash flow over the past 12 months is $2.9 billion, and it's still impressive if you insist on stripping away $900 million in stock-based compensation from that tally.
Vacation rentals have evolved on this end of the pandemic, and Airbnb is the fortunate beneficiary of a trend where remote employment and hybrid workspaces free people to explore the globe for longer stretches of time. A needle-moving 19% of the gross nights booked by Airbnb are now for stays of 28 days of longer, up from 13% just three years ago.
We could be just getting started. International travel restrictions are just starting to ease up. Sure, the timing isn't ideal given the global economic funk and geopolitical worries. Time, trend, and market leadership are on Airbnb's side, however. After a Wall Street drought since early May, this probably isn't the last bullish analyst note we'll see about Airbnb.
