Airbnb (ABNB -1.04%) is a disruptor in the travel industry as its online platform for booking condo and vacation rentals gives people many options to choose from (beyond just hotels) when it comes to choosing a place to stay.
But it's initial public offering (IPO) in 2020 came at a horrible time, in the midst of a pandemic. Revenue that year would end up declining due to COVID-19, and its net loss would total a massive $4.6 billion, which was more than its top line.
The business has, however, been improving since, and last year it hit a milestone, one that could mark an important turning point for Airbnb. The company's operations are now profitable, and that can make it a more tenable investment to a wider pool of investors. Plus, it could drastically improve its valuation.
Airbnb reported its first profitable year in 2022
On Feb. 14, travel company Airbnb reported its fourth-quarter and year-end results for the period ending Dec. 31, 2022. Last year marked the first year when the company posted a positive net income amount. At just under $1.9 billion, it was a huge improvement from the $352 million loss that Airbnb posted in 2021.
Q4 was also the fifth time in the last six periods that the company's quarterly earnings were positive. These are important signs for investors as they signal a more mature company, one that has a sustainable cost structure, which also means that it's likely to increase its profits as its business grows. That means a better price-to-earnings (P/E) multiple, which can attract more types of investors, particularly value-oriented ones who may otherwise avoid unprofitable growth stocks.
The one area of concern may be the company's growth rate, which has been slowing in recent quarters.
Airbnb is still growing but at a decreasing pace
Airbnb's sales have continued to rise, but the growth rate isn't as strong as it was a year ago. Sales of $1.9 billion in Q4 were up 24% year over year. And while that's a positive growth rate, it has been declining in recent quarters.
ABNB Revenue (Quarterly YoY Growth) data by YCharts.
The elevated growth rate Airbnb achieved in late 2021 and early 2022 likely wasn't sustainable as the travel industry was heating up due to pent-up demand. The company says that it is still seeing strong demand at the start of 2023, and for the first quarter, it expects revenue of between $1.75 billion and $1.82 billion, which would represent a growth rate of around 20% (when factoring out foreign exchange).
As the year goes on, the growth rate may continue to decline as the company goes up against tougher comparables, and at the same time, worsening economic conditions could impact demand.
Is Airbnb stock a buy today?
Shares of Airbnb aren't terribly cheap as they're trading at 38 times the company's future earnings (which are based on analyst expectations). That is well above the S&P 500 average of 19. But this is a company that only recently became profitable on a consistent basis. So that earnings multiple can -- and should -- improve over time.
That's why, if you're willing to buy and hold, the stock could still be a good investment despite the seemingly high valuation. This year may be a tough one if the economy spirals into a recession. But given the popularity of Airbnb's platform and the business's improving financials, it's a stock I'm confident can rise in value over the long haul.
