When Airbnb's (ABNB 1.20%) business struggled at the beginning of the pandemic, it was obvious why. With much of the world locked down, it was clear that Airbnb's business would slow significantly. The resulting effect on the company's stock price was not a surprise. That trend reversed itself rather quickly, and Airbnb saw its stock price hit a new high in early 2021.

What makes less sense is the 48% fall in Airbnb's stock price since early 2021. A bear market has dragged down most stocks, but Airbnb's business performance over that time has been impressive. Let's take a look to see if investors should take advantage of this drop in stock price and buy Airbnb now.

Continually improving the product

One constant for Airbnb over its time as a public company has been management's commitment to improving the user experience for both hosts and guests. It's important to remember that both of these cohorts are important to the success of the business in order to keep supply and demand in balance.

To that end, there were a few new features announced at Airbnb's winter release that should help both hosts and guests get more out of the platform. Prospective hosts can now take advantage of a feature called Airbnb Setup, which connects them with Superhosts for one-on-one guidance that carries through their first reservation. 

This is part of the company's push to get more hosts on the platform, and it's been successful so far. Airbnb saw a 20% increase in new active hosts after the November 2022 launch of this feature.

On the guest side, the winter release added a feature meant to address one of the biggest pain points for guests on the platform. It doesn't take much internet research to find complaints about hidden fees on the Airbnb platform, significantly increasing the actual cost of a rental for a guest. 

Management mentioned during the third-quarter earnings call that fixing this was a priority, and the solution was rolled out in the form of a new feature that allows guests to choose to see the total price upfront. In addition, Airbnb will be rolling out new tools for hosts to use that will help them price their homes more competitively.

Strong results all around

These platform improvements have helped drive impressive growth on Airbnb's platform. In 2022, Airbnb had 393.7 million nights and experiences booked, good for an increase of 31% over 2021. Gross booking value (a measure of all the dollars transacted on the platform) reached $63 billion for the year, representing year-over-year growth of 35%.

Interestingly, Airbnb saw year-over-year growth in the fourth quarter of 2022 across all its geographies. 

Geography

Q4 2022 Nights and Experiences booked growth

North America

19%

EMEA

25%

Latin America

23%

Asia Pacific

40%

Data source: Airbnb.

These numbers are even more impressive when you consider that global cancellation rates have still not fully recovered to their pre-pandemic levels. 

There are some other trends worth noting. Guests traveling more than 300 miles increased by 25% and the percentage of total gross nights booked coming from cross-border grew from 34% in Q4 2021 to 44% in Q4 2022. Longer stays remained strong as well. Stays of 28 days or more accounted for 21% of gross nights booked, which was consistent with the year-ago quarter.

What to expect moving forward

Airbnb is anticipating more of the same as we continue through 2023. The revenue projections for the first quarter would represent year-over-year growth of 20% at the midpoint of guidance, and nights and experiences booked are expected to be in line with Q4 2022 results. 

The drastic drop in share price over the past year-plus has presented a compelling buying opportunity for investors. Airbnb currently trades for 9 times sales and 22 times free cash flow

Chart showing drop in Airbnb's PS ratio and price to free cash flow since mid-2021.

ABNB PS Ratio data by YCharts

As this chart shows, both of these metrics are below their historical average and not far above their all-time lows. By these multiples, Airbnb is near the cheapest it's ever been. While that's not always a buy signal, the strong results and upbeat guidance suggest the current price is worth paying.