Airbnb (ABNB 0.75%) has been a massive outperformer so far in 2023, crushing the gains of the Nasdaq Composite Index by a huge margin. After a rocky 2022, when the stock dropped an eye-watering 49%, shareholders have adopted a more optimistic view as it relates to the business. 

But as of this writing on Aug. 14, Airbnb shares are down 38% from their all-time high set in February 2021. But I'm not worried. Now is a great time to scoop up this growth stock at a discount. 

Posting solid gains 

In the three-month period that ended June 30, Airbnb posted revenue of $2.5 billion and net income of $650 million, handily beating Wall Street expectations. The market didn't react positively to the news, however, likely because the sales gain did represent an ongoing slowdown, even though it was still up double digits (18%) from the year-ago period. 

But Airbnb was still able to increase nights and experiences booked by 11% year over year, with gross booking value up 13%. The leadership team is impressed by the resilience of consumer travel demand, which should propel the business in the near term, as Q3 revenue is projected to rise between 14% and 18%. 

Economic moat 

Legendary investor Warren Buffett popularized the term "economic moat," meaning a combination of favorable characteristics that allows a company to earn better financial returns than its rivals, while discouraging new entrants from entering the market. A company that has an economic moat should be able to thrive for long periods of time. 

In Airbnb's case, part of the moat is a network effect, meaning that the value of the service increases with more users. With more hosts, Airbnb becomes better for guests thanks to greater choices. And with more guests, hosts have a wider audience to reach. The company has over 4 million hosts, more than 7 million listings, and in 2022, there were 394 million nights and experiences booked. That demonstrates Airbnb's gargantuan scale. In the most recent quarter, the company reported 115 million nights and experiences booked.

And Airbnb's network effects are global. If if Airbnb lists more properties in Rome, an American traveler visiting Italy has greater choices. 

Because the technological infrastructure is largely already developed, network effects have resulted in outsize profits for Airbnb. Any incremental transaction that occurs on the platform probably doesn't cost the company much at all, indicative of its superb ability to scale. Airbnb generated $3.4 billion of free cash flow in 2022, and $2.5 billion through the first six months of this year.  

Putting the valuation in perspective 

Even though Airbnb's stock is still well off its peak price, it trades at a forward price-to-earnings (P/E) ratio of 33, which at first glance, doesn't appear cheap. The Nasdaq 100 Index sells at a forward P/E multiple of 28, so Airbnb is being offered at a premium price right now. 

If we zoom out, though, the valuation seems reasonable given Airbnb's potential. Management believes the global total addressable market is a whopping $3.4 trillion. And if Airbnb can find ways to expand its product offerings, its opportunity could be even bigger. 

Co-founder and CEO Brian Chesky points to how Airbnb is still less than a tenth the size of the worldwide hotel industry, and how the platform is underpenetrating many international markets. Add in the potential for artificial intelligence to not only drive operating efficiencies, but lead to sizable new growth opportunities, and Airbnb looks like a smart buy right now.