Airbnb (ABNB 0.75%) came into 2023 trading around post-IPO lows. Despite its strong growth last year, investors seem to be skeptical that the travel disruptor can keep it up as the threat of a recession, the company's moderating growth, and broader market sentiment led the stock to fall nearly 50% last year.
While these concerns and the market malaise may persist, Airbnb still looks like a good bet to outperform in 2023. Here are two reasons why.
Image source: Airbnb.
1. The travel sector is still coming back
The travel sector is distinct from the overall economy right now. Travel was crushed by the pandemic as many Americans and others avoided travel altogether before vaccines were available, and air traffic was down sharply through 2020 and early 2021.
Many travelers around the world are still making up for lost time during the pandemic, taking trips they intended to do a year or two ago. One year ago, for example, the omicron variant was peaking in the U.S., spoiling at least some winter travel plans, and the U.S. had only just reopened to unrestricted international travel.
While the recovery should slow down a bit in 2023, it's still expected to continue. According to a report from the Intelligence Unit of The Economist, international tourism arrivals are expected to increase by 30% in 2023, following a 60% increase in 2022, though it said they would still be below pre-pandemic levels.
Other data seems to confirm that the recovery should continue into 2023. For instance, Airbnb's peers, such as online travel agencies and hotel operators, are only just seeing revenue return to pre-pandemic levels -- and occupancy is still down compared to 2019 for many of them. Throughput numbers from the Transit Security Administration are also still slightly below pre-pandemic levels, indicating some slack in the air travel market.
As recently as December, airlines were calling for robust demand in 2023 with Delta forecasting a 20% increase in revenue. If the travel sector continues to recover this year, it's a good bet that Airbnb will be one of the winners.
2. Airbnb isn't planning for a recession
If there's going to be a recession in 2023, Airbnb certainly isn't expecting it. The home-sharing giant was the top-spending travel brand on U.S. national TV through the first 11 months of 2022, paying an estimated $86.5 million. Airbnb's own sales and marketing expenses rose 32% in the third quarter, slightly outpacing its revenue growth, another sign the company was optimistic about future demand.
Additionally, Airbnb saw a strong increase in gross booking value, or the total dollar value of bookings on its platform in Q3. Gross booking value is a leading indicator of travel demand as it represents bookings for future trips, and growth in the category actually accelerated from Q2 to Q3 at Airbnb, rising from 27% to 31% to reach $15.6 billion.
The company also said it would continue to increase headcount modestly by 7% to 8% in 2022, in line with its goal of profitable growth.
On the recent earnings call, management acknowledged the macroeconomic headwinds but said it was well-positioned to grow due to the increase in demand for long-term and non-urban stays, a function of the rise in remote work from the pandemic. Airbnb is also uniquely suited to capture that demand as it doesn't generally have to compete with hotels in those categories.
In other words, the company is prepared for a recession if one happens and expects to continue growing on the top and bottom lines. Given its differentiated position in the travel sector, Airbnb should continue to gain market share and grow regardless of the state of the economy. With the stock trading at a discount, now looks like a great time to buy.
