Airbnb (ABNB 0.10%) is a bona fide travel stock superstar thus far in 2023. It's not only trouncing the performance of the S&P 500 index but also sailing past fellow travel titans Expedia and Booking Holdings.
So it might be surprising to learn that Airbnb is down considerably from its all-time high share price by a steep 41%. It really has quite a climb to reach the summit again. Can the do-it-yourself (DIY) accommodation king make it back?
I think so, and I believe it even has a fine chance to set new records. Here's why.
A brand so strong it's now a verb
Airbnb's all-time high came not long after its December 2020 initial public offering (IPO), specifically the following February. At one point early that month, it closed at $213 per share.
That might seem curious since at that time the globe was in the midst of the COVID-19 pandemic. But Airbnb's management, not to mention the underwriters of that monster IPO, timed its market debut very well. Airbnb's IPO took place after certain countries and jurisdictions began easing mandatory lockdowns. This helped open the travel market, at least somewhat, and offered hope for the tourism industry as a whole.
What also benefited Airbnb enormously was (and is) its powerful position as, far and away, the brand most readily identified with DIY accommodation. The company is nearly a verb in addition to being a trademark. Going on vacation and want to stay in a private home? Then you may have used a phrase like, "Instead of an impersonal hotel, let's Airbnb at a cozier place."
In addition to great brand power, Airbnb benefits enormously by not owning and operating the properties listed on the site. It's a middleman, a facilitator of bookings, rather than a direct accommodation provider always striving to fill rooms.
The Great Travel Recovery story continued to roll on, but starting in mid-2022 Airbnb was hit with quite the headwind. As inflation reared its ugly head and interest rates started to rise, investors bailed from tech and tech-adjacent stocks for the safety of titles considered to be less risky. Since Airbnb lives and dies by internet bookings, it was -- unfairly, in my view -- dinged by this migration.
It didn't help that sentiment on the travel industry cooled following the start of the war in Ukraine. The conflict contributed to a rise in fuel and food prices, lifting costs considerably for airlines and eroding the budgets of travelers.
Acing the accomodation game
What comes up must come down, and inflation growth has been mellowing lately (if not as quickly as you or I would like). Through it all, Airbnb's demand has remained strong -- stronger than expected, in fact. In 2022, gross booking value blasted 35% higher than the 2021 tally. This filtered down nicely into net income, which flipped dramatically into the black at $1.9 billion against a 2021 loss of $352 million. Airbnb also saw a nearly 50% rise in free cash flow.
Results for the fourth quarter were similarly impressive, with Airbnb absolutely trouncing the average analyst estimate for profitability. All this has given Airbnb stock a lift but not enough to compensate for its earlier slump.
Yet, the company's glowing Q4 2022 earnings report won't be a one-off, I believe. Travel remains hot these days because people are still hungry to explore. Those pandemic lockdowns and shut-ins had a longer tail effect than many realize, in my opinion.
Moreover, booking travel and accommodation is easier than ever, as is navigating around new places and finding cool places to visit, eat, and drink (thank you, GPS-powered maps and recommendation apps in smartphones).
That's why I think the current level of demand is not only sustainable but poised for a lengthy rise assuming the global economy doesn't suddenly flop.
Up, up, and away
I'm not alone in my optimism with Airbnb. Collectively, analysts tracking the stock are expecting the company to improve per-share earnings over the already-impressive 2022 level by almost 20% in 2023. That should be powered by a 14% lift in revenue. The 2024 growth rates should be slightly higher for both metrics.
If anything, I'd guess that Airbnb will deliver notably higher growth provided the conditions mentioned above are met. The travel sector has some great years in front of it, assuming all goes well, and Airbnb should remain the king of DIY travel. I'm fully expecting the company's stock price to continue its recovery and even set new stock-price highs before long.
