The stock of Airbnb (ABNB 1.09%) is back in Wall Street's good graces. The travel and vacation platform is trouncing the market so far in 2023 despite worries about a potential recession.
There's no sign yet of a downturn hurting Airbnb's business. But that's not the main reason investors are bullish about it today. Let's look at a few lesser-known factors that imply solid returns ahead.
1. Positive shifts in the industry
Airbnb's 31% sales spike in the most recent quarter was impressive and kept the company firmly in growth mode. But there are shifts occurring within that growth figure that suggest encouraging momentum.
International travel is accelerating, for example, with cross-border bookings jumping 49%. And guests are staying longer, with stays of over a week rising 40% through late 2022.
Airbnb is also expanding its reach. Active-listing volumes are setting records as hosting becomes more mainstream.
These wins point to robust supply-and-demand trends on the platform, which form a strong foundation for Airbnb to expand its influence over the next several years.
2. The business is just getting started
As big as the platform is today (Airbnb welcomed 1.4 billion guest arrivals last quarter), it is the future of its business that has Wall Street truly excited. The company is currently attacking its growth goals from both the supply and the demand angles.
On the supply side, Airbnb is making it easier to list rooms and homes while adding to the services it provides for hosts. It is also working to unlock apartments as a huge new source of listings. As for demand, Airbnb is aiming to reduce prices so that bookings can be a more regular part of people's travel budgets.
Progress along these lines could allow the platform to dramatically improve its addressable market over time. "We have some big ideas for where to take Airbnb next," executives told investors back in mid-February.
3. The stock is expensive
While those growth opportunities are largely theoretical today, Airbnb's expensive valuation is a concrete fact. You have to pay roughly 10 times sales to own the stock right now, making it seem pricier than some highly profitable, established growth giants. Microsoft is valued at about the same price-to-sales ratio, for example. Booking Holdings, the owner of Priceline and several other large platforms, is priced at 6 times annual sales.
To some extent, that valuation gap reflects reasonable optimism on the part of investors that Airbnb has many more years of strong growth ahead. And while fiscal 2022 was its first year of profitability, the company has impressive cash flow and rising margins that suggest it can become much more profitable over time as it scales up.
Still, buying the stock at such a high valuation means investors are taking on risks associated with the company not living up to all the optimism around it. Short-term trends might be especially volatile, too, as a recession would crimp demand in key areas like vacation travel.
Investors considering the stock should balance those risks against Airbnb's attractive growth-stock characteristics, including dominant market share, rising margins, and a flexible selling model.
