As discretionary funds get crunched, many travelers may cut trips or at least reduce their stay length. Another way they may look to reduce the trip cost while maintaining the travel is to stay at an Airbnb (ABNB 2.14%). I'm not talking about staying at a luxurious house with a private pool, but maybe in the basement or modest accommodation.

This catalyst may allow Airbnb to continue its growth trajectory, even if the economy dips into a recession. With 30 analysts' average price target of $140.43, implying an upside of about 25%, these Wall Street analysts may be thinking the same thing.

Should you join in and buy Airbnb stock?

A record quarter, with more growth ahead

Despite consumers feeling the squeeze of inflation during the second quarter, Airbnb still cranked out fantastic results. In the second quarter, Airbnb notched several all-time bests: 103 million nights and experiences booked, $2.1 billion in revenue, and $379 million in net income. These numbers indicate fantastic year-over-year (YOY) growth and year-over-three-year (YO3Y) growth, which compares to pre-pandemic travel.

 Metric YOY Growth YO3Y Growth
Nights and Experiences Booked 25% 24%
Gross Booking Value (GBV) 27% 73%
Revenue 58% 73%

Source: Airbnb.

To top off this excellent Q2, guidance for the third quarter was everything investors could hope for. Management expects the highest quarterly revenue ever and gross booking value to increase at a rate similar to Q2. While they didn't give net income guidance, they did indicate adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin will be around its all-time high of 49%.

It's hard to argue with that guidance, but the economic situation hasn't improved since Airbnb gave this guidance on Aug. 2. However, analysts are also expecting Airbnb's revenue to come in at $2.84 billion, practically right in the middle of Airbnb's guidance.

The business is executing, but how is the stock?

Airbnb is trading at a reasonable valuation

Airbnb stock is still down nearly 50% from its all-time high, so clearly, investors don't have the same outlook as management. However, a lot of this drop has to deal with Airbnb's valuation falling from unreasonable highs. Airbnb used to trade above 20 times sales, which isn't sustainable unless you're growing at an extreme pace with a must-have, non-discretionary product.

The current 10 times sales is more reasonable, and 25 times free cash flow is also not expensive for a company growing as quickly as Airbnb.

However, until Airbnb can prove itself during a recession (not one triggered by COVID-19, when little travel occurred), there will always be skepticism from investors. The current downturn and maybe a potential future recession would allow Airbnb to prove its resiliency.

Still, there is a bearish argument to be made against Airbnb.

The most significant issue is short-term rentals' effect on housing and rental supply. Dedicating a home to be rented out on Airbnb removes one from the market that would typically house a long-term renter. With rents skyrocketing across the nation, there are fewer places to look, which has angered many renters and municipalities.

It's possible that cities could regulate the number of short-term rentals or tax them to a point where it no longer makes sense to stay at one versus a traditional hotel. However, I'd expect a lengthy legal battle if this occurs in one of Airbnb's major travel cities, which means the effect of something like this wouldn't be felt for some time.

This change may not occur at all.

Still, it's something to keep in mind before investing in Airbnb. The company has long-term tailwinds blowing in its favor and is still guiding to have its best quarter ever in Q3, despite the consumer having less discretionary cash.

I think now is an excellent opportunity to establish a position in Airbnb, as the stock has much more upside over the long-term than the 25% analysts project.