Shares of Airbnb (ABNB -1.46%), the short-term rental platform, appear to have recovered from the bear market lows they reached late last year. Improving financials and an increased interest in AI seem to have boosted the stock by some 60% so far this year.
Such a gain over a short time frame can lead prospective investors to believe they have missed out. But before reaching that conclusion, investors should take a closer look to see whether they still have an opportunity to profit from this internet and direct-marketing retail stock.
The Airbnb opportunity
Airbnb continues to change the face of the residential rental market -- outshining the first mover in the market, Expedia's Vrbo, by applying AI to the short-term vacation rental market to find opportunities. Thanks to this research, AI can help with searches, the powering of chatbots, and the pricing of properties.
However, it has also derived revenue from unexpected sources. Due to the increase in remote work, long weekends have become Airbnb's fastest-growing trip type.
Moreover, it has leveraged its site to create other opportunities. For various reasons, a tenant may need to leave an apartment before a lease expires. Airbnb will help tenants rent out the space while they wait out the lease.
Additionally, Airbnb has become a highly recognized brand, and the company is masterful at capitalizing on its name. Thanks to that recognition, landlords will often choose to post their spaces on the site, while tenants will often look for properties to rent there, creating a network effect.
The effects on its financials
The financials appear to reflect this success. In the first six months of 2023, Airbnb reported $4.3 billion in revenue, a 19% increase from the same period in 2022.
Over that time, the company limited operating-expense growth to 16% and earned $337 million in interest income. This helped net income rise to $767 million, 113% more than the $360 million reported in the first half of 2022.
As a result, Airbnb now sells at a price-to-earnings (P/E) ratio of 40. Although that might sound expensive, Airbnb's earnings multiple has never fallen below 30.
Investors should also realize that the stock trades at a discount of about one-third from its November 2021 high when it had not yet reported a positive net income. Considering that turn to profitability amid a declining stock price, the current valuation may not deter investors.
Additionally, on the Q2 2023 earnings call, CEO Brian Chesky said the company had repurchased $2.5 billion in stock over the last 12 months, negating most of the previous year's stock dilution. Hence, unlike many growth companies, its success does not depend on diluting shareholders.
Consider Airbnb
Considering Airbnb's financials and prospects for growth, it is likely not too late to buy the stock. Indeed, its price has increased significantly this year, and its earnings multiple will likely discourage some value investors from buying.
Nonetheless, the company continues to create opportunities in the short-term rental market that did not previously exist. Furthermore, it has utilized AI to cut costs and help renters find their desired and appropriately priced properties. As more landlords and tenants turn to Airbnb, its shareholders should continue to benefit.
