Investors are conflicted about Airbnb (ABNB 0.99%) stock right now. Shares have declined sharply in 2022, even though the home and room rental platform is seeing strong growth and generating impressive profits.
Wall Street is more worried about the effect that an economic pullback might have on its service, which relies on discretionary spending for many of its travel bookings. Let's take a closer look at how that exposure to the travel industry might hurt the business over the next few quarters, along with one big reason to still like the stock.
The red flag: Exposure to vacation travel
The major concern about Airbnb's business is the possibility of a recession. Such a slump would create intense pressure on travel spending, which still accounts for most of the company's business.
In the latest quarter, for example, short-term stays were 80% of Airbnb's sales through late September. There were also hints of mounting pressures on the business from the shifting macroeconomic environment. Management noted sluggish bookings among enterprises and a slight growth slowdown in both the volume of overall bookings and the increase in average nightly prices.
The good news is that those issues don't take away from Airbnb's strong sales trends in 2022. In fact, booking volumes have been up 25% in each of the last two quarters, even as average spending per night rose. The main fear is that these growth trends will slow significantly over the next few quarters if the global economy falters.
The green flag: Experience
Airbnb has been through weak growth periods before. It launched during the wake of the Great Recession, after all, when many people were looking for ways to generate extra income from unused space.
The company is aiming to capitalize on a potentially similar shift in attitudes over the next few quarters. It just launched a new onboarding process aimed at making it easier for homeowners to become hosts so that it can boost the supply of nights and experiences on the platform.
Airbnb's other major competitive asset -- its ability to upgrade its platform and services offerings -- is harder to quantify, so it can be underappreciated on Wall Street. The company is already using new features like its "categories" browsing method to add value for guests and hosts. And engagement is strong for these tweaks, management said recently, with the categories addition seeing over 300 million sessions since mid-May.
Airbnb can't control what happens with global demand for vacation or business travel over the next few quarters. But it does have a huge reach and plenty of resources it can direct toward building up its platform through any type of selling environment.
Those factors should support strong returns for patient investors, even if the next few quarters might be unusually volatile. Its exposure to the travel industry makes it a riskier stock investment if a recession develops in 2023. But Airbnb seems well-positioned to ride out a storm like that. Keep this growth stock on your watchlist or consider adding it to your portfolio.
