Vacation rental platform Airbnb (ABNB 0.82%) may not seem like a moneymaking stock, considering it's down 24% since last year. But the stock has already made investors a lot of money this year. Since the start of 2023, Airbnb's share price has jumped by 27% and there's reason to believe it could keep going.
Let's take a closer look at what's going on with this hot stock -- and why it could continue to blossom in the coming years.
The latest on Airbnb
There have been a lot of conditions weighing on Airbnb since its initial public offering in 2021. To start, it went public in one of the most difficult years for the travel industry in history, which was followed by the tech crash and bear market of 2022. Now, investor concern is growing over a potential recession and its impact on travel spending. These factors combined are why the stock is trading around 50% less than its recent high.
Even with these monumental challenges, however, Airbnb is doing incredibly well. Its latest third-quarter earnings, which ended September 2022, reported healthy demand for its properties, with nightly booking numbers and rates up across the board. The company reported its highest quarterly earnings before taxes, interest, depreciation, and amortization (EBITDA) in history and grew its free cash flow (FCF) by over 80% from the prior year.
By all metrics, business is booming. The stock started to rebound at the end of December, seemingly for no particular reason. The company hasn't reported any new earnings or guidance for its performance. My assumption is that people are realizing the moneymaking potential of Airbnb in the long term and are taking advantage of low pricing.
2023 may not be as bad for travel as many believe
One of the biggest concerns weighing on Airbnb is a pullback in travel spending. If the U.S. were to enter a recession in 2023, there is a good chance booking numbers and nightly rates would decrease. However, a slowdown isn't guaranteed. The latest data on travel spending for October showed only a slight pullback from the prior month and was still up compared to pre-pandemic levels. Consumer spending remained strong through the holidays despite many outlooks expecting a grim season.
Long-term stays are also increasing each quarter. The shift to remote working over the last few years is allowing more people to travel, staying in places with Airbnb, something that shouldn't slow in the event of a recession as many countries offer better cost of living for digital nomads.
Investors also shouldn't overlook the bigger picture of what Airbnb is doing. It's completely disrupted the travel industry by offering guests unique and alternative stays to traditional hotels or bed and breakfasts -- something I don't see stopping with a single down economy. The company has over 6 million listings in roughly 220 countries and regions and is continuing to grow.
The fourth-quarter and full-year 2022 earnings will shed better light on how the company is faring, but I urge investors to take a long-term outlook on this when it comes to its moneymaking abilities. Disruption at Airbnb's scale, especially for such a young company, isn't something to take lightly. Right now it's trading around 45 times its earnings, which is elevated compared to other stocks in its industry, but a fair price compared to other popular high-growth tech stocks.
It's worth noting the path to a fortune doesn't often happen in a single year. 2023 could be a very strong year for the company, especially if travel spending doesn't slow as many expect. But the longer the stock is held, the greater the moneymaking opportunity it brings. Airbnb is very much a long-term stock for me as I know it could take several years for its full potential to be realized.
