Airbnb (ABNB 1.17%) is disrupting the multitrillion-dollar travel industry. The online marketplace has made it easier and safer for property owners to profit from the booming short-term housing rental market. And after bolstering its own cash-generating abilities, Airbnb is now well positioned to produce strong returns for its shareholders.
Airbnb's stock price is already up nearly 40% in 2023, and more gains likely lie ahead. Here's why you might want to consider buying shares today -- before more bulls come rushing in.
1. Powerful network effects are fueling Airbnb's growth
The travel company's platform-based business model is a thing of beauty. Airbnb connects more than 4 million hosts that have collectively served over 1 billion guests in locations across the world. Acting as an intermediary, Airbnb earns fees for bringing property owners and travelers together. It's a profitable and highly scalable approach. It's also capital-light, meaning Airbnb doesn't need to incur much in the way of capital expenditures to expand its business. The costs of buying and maintaining properties are borne by the hosts.
Airbnb can thus invest more in its brand and technology. It's already working from a place of strength. Airbnb is often the first site people think of when they're searching for short-term rentals. This leading consumer mindshare helps Airbnb attract more guests and gives it an edge over its lesser-known rivals.
Moreover, hosts want to list their properties where the most potential guests will see them, while travelers want to peruse the largest selection of homes for rent. These dynamics naturally lead both groups to Airbnb -- and in ever-growing numbers.
2. Airbnb's revenue and cash flow are surging
Nights and experiences booked on Airbnb's platform jumped 31% to 394 million in 2022. That drove a 40% increase in revenue to $8.4 billion and a 49% rise in free cash flow to $3.4 billion.
In addition to the rising demand for housing rentals, Airbnb is benefiting from its cost-cutting initiatives. A COVID-19-driven plunge in travel during the early stages of the pandemic forced Airbnb to slash its expenses. The company emerged leaner, more profitable, and, in turn, stronger.
ABNB Revenue (TTM) data by YCharts.
This more efficient cost structure should continue to bear fruit as Airbnb scales its operations. And thanks to the operating leverage inherent in Airbnb's network-based business model, investors can expect its profit and free-cash-flow margins to improve further as it grows its revenue base over time.
3. Airbnb's shares are attractively priced
Although its business fundamentals have improved markedly, Airbnb's stock price is well below the highs it reached in early 2021, shortly after its initial public offering (IPO) in December 2020.
Airbnb's stock price pulled back along with other growth stocks during the recent bear market. Even after rallying sharply so far in 2023, its shares can currently be had for about 23 times its trailing-12-month free cash flow. That's a bargain price for a high-quality business that could easily grow its per-share cash flow at more than 20% annually in the coming years.
