Airbnb (ABNB 0.76%) has transformed the travel industry. Just a decade ago, the home-sharing platform was a little-known fringe concept, but today the idea of renting a stranger's home has gone mainstream. For many travelers, staying at an Airbnb has replaced hotels, and millions of people supplement their income or even earn a living by hosting on the platform.

As a stock, Airbnb has disappointed this year. The shares have fallen nearly 50% -- just one of many high-growth tech stocks that have been hit hard by rising interest rates and fears of a recession. With the stock on sale, it's worth considering the many reasons Airbnb should be on your long-term buy list.

A pool at an Airbnb in Milan

A pool at an Airbnb in Milan, Italy. Image source: Airbnb.

1. Its margins are already huge

In the third quarter, Airbnb reported net income of $1.21 billion on $2.88 billion in revenue, giving it a 42% profit margin. The third quarter is its seasonal peak, but even over the last four quarters, its profit margin was 20% -- and that should increase as the company forecasts expanding margins in the fourth quarter.

2. It has a monopoly

Airbnb has become synonymous with the home-sharing industry, and it's both a noun and a verb for staying at the home of a stranger. According to research and analytics firm M Science, it has 74% market share in home-sharing, and the company is likely to continue dominating the industry it pioneered with its network effects, high switching costs, and well-known brand. That monopoly power is one of the reasons it can generate large margins. 

Airbnb invented the home-sharing concept. In order to dethrone it, a competitor would have to offer something significantly different and better -- and that seems unlikely. 

3. It's generating tons of cash

In addition to producing large margins on a GAAP basis, Airbnb is also highly profitable on a cash basis.

Over the last year, the company has reported $3.3 billion in free cash flow on $8 billion in revenue, or a free-cash-flow margin of 41%. Not a lot of companies are more efficient at generating cash.

4. The business model is a dream

Airbnb takes the user-created content model that's been so successful on the internet one step further. Users (or hosts) don't create content; they create experiences, and they're directly incentivized to do so. While social media networks like Facebook monetize user content through advertising, hosts on Airbnb are selling these experiences directly, giving it a better product-market fit, and allowing it to collect commissions while others do the work of hosting. 

5. It has almost no capital expenditures

Besides its outstanding business model, Airbnb also doesn't need to spend much on capital expenditures (capex) for things like data centers and other infrastructure that can require sizable investments at some tech companies. Through the first three quarters of 2023, it spent just $16.6 million on capex. That shows its business is highly scalable, and it shouldn't have a problem ramping up with demand.

6. It has a bonus income stream

While most of the money Airbnb makes comes from commissions and fees on stays and experiences, it also collects interest on the money it holds between when a booking is made and when it starts. The company calls this "funds held on behalf of customers," and with interest rates rising, that supplemental income has become substantial.

In the third quarter, Airbnb earned $58.5 million in interest income, and that number is likely to grow as interest rates rise.

7. It can adapt to a recession

The travel sector typically is highly cyclical. Consumers spend more on vacations when they have the money, so a recession would be a clear headwind for the industry.

But Airbnb has a greater ability to adapt to a recession than peers like hotel chains or online travel agencies because its inventory is flexible, and it can offer a broad range of accommodations. Hosts also respond quickly to changing economic demands. 

For example, the number of single-room listings jumped 31% in the most recent quarter as people around the world looked for ways to cope with sky-high inflation, giving more budget options for travelers.

8. It has a huge addressable market

Airbnb's gross booking value, or the dollar value of its bookings, reached $61.1 billion over the last four quarters, but the company estimated at the time of its initial public offering that its addressable market, which is made up of the categories it currently competes in, is worth $1.5 trillion.

The travel and lodging industry is huge, and Airbnb only owns a small market share, giving it a long growth path.

A person and a child looking at trees through a glass window

Image source: Airbnb.

9. The management team is strong

When Airbnb laid off a quarter of its staff early in the pandemic, CEO Brian Chesky was lauded for a letter he wrote to employees, explaining why the layoffs were happening and what was next for the people involved. Management also took the unusual step of setting up an "alumni talent directory" to help laid-off employees find new jobs, and the company assigned its recruiting team to help them as well.

More recently, Chesky has responded to complaints about opaque pricing with a product update that tells travelers what they'll pay up front, solving a major pain point. 

On Glassdoor, 83% would recommend working there to a friend, and the same percentage approve of Chesky as CEO. The company was also rated the No. 1 place to work in 2016. Investors are in good hands with Chesky and the rest of the management team.

10. The stock is well-priced

Airbnb now trades at a price-to-earnings ratio of 42, not much more expensive than slow-growth stalwarts like Procter & Gamble and Coca-Cola. Investors seem to be betting that Airbnb's recent growth was more a reflection of the rebound in the travel sector, rather than any unique strength in the business.

But the company has taken significant market share from peers like Booking Holdings and the hotel chains since the start of the pandemic, and that's likely to continue even if a recession hits.

Valuing the stock like a mature business seems like a mistake. Airbnb still has a promising, long-term growth opportunity and the means to capitalize on it.

At the current price, the stock looks set to reward investors over the coming years.