2023 has seen an excellent start for Airbnb (ABNB -0.23%) stock with a 50% gain in under two months. As a result of the quick rally, many investors may wonder if they've already missed the boat on this stock.
Let's dive into Airbnb's prospects and see if this is just the start of an even bigger story.
Airbnb had a tremendous fourth quarter, but there's more ahead
Airbnb is the market leader in alternative stays and travel experiences. Whether you're looking to rent out a cabin, book a guide to explore a canyon, or stay in someone's basement for a month while relocating to a new city, Airbnb has you covered.
However, Airbnb's platform isn't without controversy. For example, cleaning fees (which co-founder and CEO Brian Chesky has vowed to fix) had become a controversial way for hosts to hide the actual cost of a rental until final checkout. Additionally, some markets (like New York City) have banned certain types of short-term rentals in the hopes of combating the housing crisis that has spread through much of the country (and world).
While these are valid concerns worth following closely, Airbnb still has a lot offer investors.
In the fourth quarter, Airbnb reported blowout results which saw revenue rise 24% year over year to $1.9 billion. It's also profitable, posting $319 million in net income -- good for a 17% net margin.
Management also took a bit of a victory lap in its shareholder letter, stating that the fourth quarter saw the "highest number of active bookers yet, demonstrating guests' excitement to travel on Airbnb despite evolving macroeconomic uncertainties." Airbnb has every right to celebrate as many investors were worried about how the company would fare as consumers' dollars were stretched thin. They also see longer lead times in first-quarter bookings than last quarter, meaning demand isn't weakening either.
With Airbnb displaying its resiliency during tough times and with brighter days likely ahead, it's currently looking like an excellent investment. But can you buy it at the right price after its impressive run-up year to date?
Airbnb's stock may look expensive, but its margins make up for it
Airbnb hasn't been public for long, so it's challenging to determine an average or baseline valuation.
Data by YCharts.
Additionally, at 44 times earnings and 24 times free cash flow (FCF), it commands a premium to many other stocks in the hospitality space.
Data by YCharts.
But Airbnb's margins are also significantly higher than those of its competitors.
| Company | TTM Gross Margin | TTM Net Margin |
|---|---|---|
| Airbnb | 82.2% | 22.5% |
| Marriott | 21.9% | 11.4% |
| Hilton | 30.8% | 14.3% |
| Hyatt | 21.9% | 7.7% |
Data source: YCharts. TTM = trailing 12 months.
Because of these significant margin differences, Airbnb has the potential to produce even higher profits as the company matures.
So, is the stock pricey after its run-up? I'd say no, but it's not cheap, either. Wall Street analysts are projecting about 14% and 18% revenue and earnings growth, respectively, this year. But the company could very well beat those expectations, especially on the bottom line, as it already has a habit of doing so in the past eight quarters.
If this trend continues, Airbnb should outperform going forward, and it still looks like an excellent long-term investment.
