Airbnb (ABNB 0.10%) has been in sizzling form on the stock market in 2023, as shares of the vacation rentals platform provider have jumped 43% year to date, and it looks like the stock's hot rally could be here to stay amid an expected improvement in tourism demand this year that could help it sustain its solid growth.
So does this mean investors who have missed out on Airbnb's impressive rally should buy the stock before it becomes more expensive? Let's find out.
Airbnb could grow at a faster pace than expected
Airbnb reported revenue of $8.4 billion in 2022, an increase of 40% over the prior year. It also swung to an adjusted profit of $2.79 per share during the year, compared to a loss of $0.57 per share in 2021. The terrific improvement in Airbnb's numbers was driven by a big jump in the number of nights and experiences booked on the company's platform.
Customers booked roughly 394 million nights and experiences on Airbnb last year, a 31% increase over 2021. Meanwhile, the company witnessed faster growth of 35% in gross bookings value to $63.2 billion in 2022, driven by an increase in the average daily rate. Airbnb reported a 5% increase in the average daily rate in the fourth quarter of 2022 to $153, after excluding the impact of foreign exchange.
However, analysts expect a slowdown at Airbnb in 2023. Consensus estimates suggest that the company's revenue may increase only 14% this year to $9.6 billion, while analysts anticipate earnings to jump nearly 19% to $3.31 per share. But don't be surprised to see Airbnb outperform analysts' expectations.
Airbnb's stock popped this week after the U.S. Travel Association's (USTA) forecast of heavy travel demand during spring break. The association cites an Airlines for America report that estimates 158 million passengers could be traveling in March and April this year, which would be a 1% jump over the pre-pandemic levels seen during the same period in 2019. The USTA also points out in its March monthly report that 52% of Americans are likely to travel through July 2023.
The good news doesn't stop here for Airbnb, as travel and tourism spending is expected to increase across the globe in 2023. According to the World Travel & Tourism Council (WTTC), the contribution of travel and tourism to the gross domestic product (GDP) of Asia Pacific, Europe, and North America is expected to start growing from 2023 after three negative years. What's more, WTTC estimates that travel and tourism's contribution to the growth of the global economy may increase at an annual rate of 5.8% through 2032, outpacing the global economic growth rate of 2.7%.
The improvement in travel and tourism bodes well for Airbnb, as travelers will need places to stay, thereby increasing the demand for the company's platform. Moreover, Airbnb's solid share of the vacation rental market and its global reach put it in a nice position to tap the secular growth of the travel and tourism industry.
According to vacation rental management software provider Hospitable, Airbnb reportedly controls a more than 20% share of the global vacation rentals market thanks to a big jump in the company's listings and a huge global network. The number of properties listed on Airbnb hit 6.1 million in September last year, which was 19.2% higher than in September 2019.
All this indicates that Airbnb is well placed to benefit from the post-pandemic travel recovery that's expected to gain more momentum this year, and that could help the stock sustain its momentum on the market.
Should you buy Airbnb stock?
Airbnb's 2023 rally has made the stock expensive. It is now trading at 44 times earnings, up from where the stock was at the beginning of the year.
ABNB PE Ratio data by YCharts
This makes Airbnb quite expensive compared to the Nasdaq-100 index, which has an average price-to-earnings ratio of 25. But investors looking for a growth stock can still buy Airbnb, as its forward earnings multiple of 35 points toward an improvement in earnings. More importantly, Airbnb could report stronger earnings growth than what's expected from it, as the discussion above suggests.
All this indicates that Airbnb stock's rich valuation seems justified. So, it may not be too late for you to buy Airbnb, especially considering that it could soar higher amid improving market conditions.
