Global travel revenue is (finally) expected to exceed 2019 levels this year, completing its pandemic recovery, as shown in the chart, despite current economic challenges like inflation. From there, global sales are expected to top $1 trillion by 2027.
Data source: Statista.
Hotels still handle the bulk of travelers, but vacation rentals are making waves. Airbnb (ABNB -0.96%) posted sales of $8.4 billion in 2022, 75% above its 2019 totals, as it continues making its mark on the industry.
Frankly, the 2022 results crushed it across the board. Nights and experiences reached about 394 million, 20% more than 2019, and gross booking value (total dollar value of all bookings on the platform) reached $63.2 billion, or 67% above 2019 levels.
Still, travel budgets are likely much lower this year than they would be if the economy were booming. In the long run, this bodes well for the industry and Airbnb.
Secular demand isn't the only reason for optimism about Airbnb stock.
Management provides new tools
One of the challenges for Airbnb is keeping up with demand. The company will lose sales if potential customers can't find desirable accommodations. But potential hosts may be nervous about damage to their property or find the listing process cumbersome. This is a genuine concern, and management is listening.
The company's Q4 2022 rollout of Airbnb Setup and AirCover illustrates this. Setup guides new hosts through the process of their first listing, while AirCover expands damage protection, improves guest screening, and provides protection for guests.
These tools should allow the company to continue to build its available listings. It finished 2022 with 900,000 additions (excluding mainland China operations) to reach 6.6 million active listings.
The business model is highly profitable
Airbnb was forced to make draconian cuts in 2020 when the pandemic struck in force. Revenue plunged, and the company simply could not afford to keep much of its staff. It focused on core operations and streamlining.
Now, these initiatives have put Airbnb ahead of much of the tech industry. Companies like Amazon, Alphabet, and many others are seeing profits dry up and laying off staff to compensate.
But Airbnb has kept the company lean, and the workforce is still 5% smaller than in 2019 (while sales are up big). What's more, this model is proving effective. During the recent Q4 earnings call, CEO Brian Chesky credited being nimble as a significant factor in the company's recent success.
2022 was the company's first profitable year, with $1.9 billion in net income and a net margin of over 20%. Free cash flow skyrocketed to $3.4 billion on an outstanding 40% margin. This means shareholders get the best of both worlds: a highly profitable growth stock.
Airbnb's stock is down more than 30% from its 52-week high, as it isn't immune to market turbulence. Many believe that current economic challenges will stifle growth this year; however, the company thrived in 2022, and its streamlined operation is terrific for withstanding headwinds.
Airbnb is also tough to value due to its unique business, short history, and recent push into profitability. The stock's price-to-sales (P/S) and price-to-free cash flow ratios are near their lowest levels, but it is still wise to use dollar-cost averaging when building a position.
So is Airbnb a buy?
Long-term investors seeking growth, profits, excellent management, and a superior business model should take a close look at Airbnb stock.
