Up by a whopping 42% year to date, Airbnb's (ABNB -1.52%) stock has hit the ground running in 2023. And despite facing a challenging macroeconomic environment, the company's disruptive business model could continue to create long-term value for investors. Let's explore three reasons why the bull run might just be getting started.
1. Airbnb can survive the tough economy
We are in one of the most complicated economic situations in decades. Inflation and interest rates remain high, and previously buoyant industries like tech and banking are beginning to show signs of stress. With the Federal Reserve expecting a recession to occur later this year, there is a real possibility that the economic uncertainty might eventually spread to the hospitality industry where Airbnb operates.
But unlike traditional hospitality companies (think hotels and resorts), Airbnb's unique business model may give it some protection in a potential downturn. Founded in 2008, the company was born during the last big financial crisis, when homeowners were incentivized to list spare rooms to supplement their incomes. Airbnb's chief strategy officer, Nate Blecharczyk, believes similar dynamics could play out in the future.
Airbnb's properties are also located all over the world, including lower-priced domestic destinations. And the platform offers a variety of listings at different price points (including shared rooms, sheds, and garages), so it can be a cost-saving alternative to regular hotels.
2. The pandemic may have been a blessing in disguise
The Covid-19 pandemic was a boom for many tech companies, leading them to over-expand and let spending run out of control. Airbnb took a different approach. Under immense pressure from lockdowns and movement restrictions, it drastically streamlined its operations to emerge from the crisis stronger than before.
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In 2020, the company laid off 25% of its staff and cut its investments in ventures that didn't directly support its core business. And while layoffs can be bad for morale, CEO Brian Chesky believes the staff reductions improved productivity by facilitating communication, putting the best people to work on the company's most difficult problems. So far, it seems to be paying off. Fourth-quarter revenue increased 24% year over year to $1.9 billion, while net income jumped to a record of $319 million.
As a profitable company, Airbnb is less vulnerable to challenges like high interest rates, which increase the cost of borrowed capital. The company can also use its cash flow to return value to shareholders through buybacks. In 2022, the board announced a $2 billion share repurchase plan to offset dilution from its employee stock-based compensation.
3. The valuation looks fair
With a forward price-to-earnings (P/E) ratio of 32, Airbnb stock trades at a small premium to the NASDAQ 100 average of 27. But the premium looks fair, considering the company's respectable top- and bottom-line growth rates, and the fact that it can hold its own in adverse economic conditions. Shares look positioned for continued success over the long term.
