The pandemic-related travel boom of 2021 and 2022 has helped Airbnb (ABNB 0.82%) have one of its best years ever. Yet despite its strong business performance as of late, the vacation rental company's stock is down 30% year to date.
The ongoing bear market downturn is largely to blame for Airbnb's big fall. But some investors are wondering if a bigger issue could be looming for this high-growth stock.
NASDAQ: ABNB
Key Data Points
Bad timing
Airbnb's beaten-up share price today is mostly due to bad timing. The company went public in December 2020 as the world was still in the thick of the coronavirus pandemic. Many were surprised that it chose to follow through on its IPO plan given the state of the travel industry at that point, but it did, and had an extremely successful debut. Its shares opened their first trading day roughly 115% above their IPO price.
Strong investor appetite for high-growth tech stocks and improving travel conditions pushed Airbnb's share price up by 25% over the following year. But 2022's slumping market sent its price plummeting along with most other tech stocks in the Nasdaq Composite.
Recessionary concerns have kept its share price down even though the company has reported impressive earnings since then. In the second quarter, Airbnb saw 25% growth year over year in nightly bookings and a 58% increase in revenue. It also earned $395 million in net income, making Q2 one of its most profitable quarters ever.
It's not unreasonable that the prospect of a recession is putting pressure on Airbnb's share price. Travel spending is one of the first things to decline when consumer spending slows broadly. However, that doesn't mean investors should give up hope on this company.
Is Airbnb a buy?
Prior to 2022, high-growth technology stocks were trading at major premiums. Their steep falls have now brought their valuations down to levels that better reflect their recent performance, rather than speculative levels based on the growth the companies might deliver in the future.
For a frame of reference, Airbnb at its IPO traded for over 150 times its earnings (P/E ratio). Today, it's trading at around 64 times its earnings, which is still richly valued compared to its closest competitors in the travel industry. But I still believe Airbnb is a worthwhile buy today.
The company has a cash stockpile of nearly $10 billion, which is more than enough for it to ride out any hardships that may arise in a recession. Its revenue has steadily grown over the last three years to over $2 billion last quarter. Even if bookings slow in the near future, this vacation rental giant isn't going anywhere anytime soon.
Millions of guests are booking stays on the platform each quarter. It has over 4 million hosts on its platform and new search tools like Airbnb Categories are making it easier and more enticing than ever for renters to browse and book stays across the globe.
Its share price could fall further if economic conditions worsen. But there's no guarantee that will happen. The stock has already rebounded nearly 30% from its July 2022 low and it could keep climbing. Its next earnings report, to be released on Nov. 1, will offer more insight into how the current economic conditions are impacting the company.
However, for patient long-term investors who believe in the vision behind Airbnb's business model, right now is an ideal time to jump in.
