With inflation beginning to fall and interest rates likely near a peak, it looks increasingly likely that stocks could enjoy a bull market as economic conditions normalize. While it's hard to time the market, quality companies like Airbnb (ABNB 0.87%) can reward investors no matter what happens. Let's explore why the company looks poised for success.
1. Booming growth and a more efficient corporate culture
As a hospitality company, Airbnb's business was slammed by the COVID-19 pandemic in 2020 and 2021. But management used this as an opportunity to cut costs and streamline its business model, mainly through laying off employees. Now, the effects of these decisions are shown in the company's impressive financial results.
While 2022 was generally a difficult year for NASDAQ companies, Airbnb bucked the trend with record levels of active listings on its platform (up 900,000 to 6.6 million globally). Revenue soared 40% to $8.4 billion, while the company generated its first annual generally accepted accounting principles (GAAP) profit of $1.9 billion (up from a loss of $352 million in 2021).
As they say, pressure creates diamonds. And it seems like going through a challenging situation like the coronavirus pandemic caused Airbnb to hunker down and dramatically boost the efficiency of its operations. CEO Brian Chesky credits the layoffs with productivity gains, saying the moves helped Airbnb work faster and put the "very best people" on only a few problems, helping boost growth.
Corporate culture is difficult to quantify. But it likely plays a big role in how well companies perform over the long term.
2. A recession-resistant business model?
As a newly profitable company, Airbnb is now safer from some challenges faced by loss-making alternatives. For starters, it is less vulnerable to rising interest rates because it isn't completely dependent on external sources of financing such as loans. The profits will also help the company return value to shareholders through efforts like a share buyback program (announced in late 2022 with $2 billion authorized) which aims to counteract the dilutive effect of stock-based compensation.
But perhaps more importantly, Airbnb's unique consumer-to-consumer business model may shield it from a possible recession, which the Federal Reserve believes will occur this year.
Image source: Getty Images.
Founded in 2008, at the height of the last big global recession, Airbnb owes some of its rapid growth to struggling families listing spare rooms on the platform for extra income. Chief Strategy Officer and Co-Founder Nate Blecharczyk believes similar dynamics could play out in the future. The company can also provide a cheaper alternative to guests who no longer have the budget to afford a full-service hotel.
The valuation is still good
Airbnb's shares have risen 41% year to date, a move that likely reflects the market's growing optimism that the company can coast through a recession and maintain strong revenue and profit growth over the long term. With a forward price-to-earnings (P/E) of 32, the stock trades at a reasonable premium over the NASDAQ 100 average of 27, which means investors still aren't too late to bet on its continued success.
