With the Nasdaq Composite down by 14% over the last year, tech investors have been going through the wringer. Hospitality disrupter Airbnb (ABNB 0.24%) hasn't been spared, losing a quarter of its value in the same time frame. But market downturns create an opportunity for investors to bet on quality stocks at a discount. And after this sharp drop, Airbnb finally looks ready for a bull run. Let's see why.
What went wrong with Airbnb?
Founded in 2008 and going public in late 2020, Airbnb was proof that a great company doesn't always make a good investment. Things came to a head with the COVID-19 pandemic, which ground the hospitality business to a halt through lockdowns and movement restrictions.
In 2020, Airbnb generated a net loss of $4.6 billion followed by $352 million in 2021. Then in 2022, the Federal Reserve began one of its most aggressive rate hike cycles in history, further eroding investor demand for loss-making growth stocks. All in all, Airbnb shares still trade at a 14% discount to their first-day close of $145. But while this hospitality disrupter has historically been bad news for investors, that could soon change.
The pandemic was a consolidation period
The fascinating thing about the pandemic's stay-at-home boom is that many of its top beneficiaries (like Amazon, Zoom, and Carvana) now seem to be in a worse position than before. But while these companies overexpanded during the crisis by hiring too many employees and eroding their margins, Airbnb took a different approach: consolidation.
Image source: Getty Images.
Under the leadership of its founder and CEO, Brian Chesky, Airbnb embarked on a series of cost-cutting measures that hit everything from staffing levels to cloud storage costs, and the impacts have been stunning. Between 2020 and 2022, Airbnb's total costs and expenses have dropped 5% to $6.6 billion, while revenue has jumped almost 150% to $8.4 billion. And according to Chesky, the staff reductions may have boosted growth by improving teamwork efficiency and putting "the best people" to work on the company's problems.
Far from the inefficient behemoth of two years ago, Airbnb has evolved to become lean and profitable. In the fourth quarter, adjusted EBITDA jumped 52% year over year to $506 million. The company's scale and niche (a more personalized travel experience compared to hotels) should help ensure continued long-term expansion.
The future looks bright
With a forward price-to-earnings (P/E) multiple of 32, Airbnb stock is more expensive than the Nasdaq average of 24. But the premium looks justified considering the company's rapid growth rate and stellar control over its expenses. At a time when most tech companies are dealing with overstaffing and weak margins, Airbnb is posting record profits, making the stock a great way to bet on a new bull market.
