Airbnb (ABNB -1.27%) investors have had a very good year so far. The home and room rental specialist's stock price is up over 67% in 2023, far outpacing the 34% rally in the Nasdaq Composite. Those excellent returns are partly due to persistently high demand in the travel industry today, which has lifted sales for Airbnb as well as industry peers like Booking Holdings.
But Airbnb is benefiting from more than just a boost in room night rentals and higher earnings. Let's take a look at two other metrics that suggest a long runway for growth ahead for the stock.
1. Active listings: Let's host our house
Most investors focused on the solid demand that Airbnb reported in its last quarterly update. Gross booking value was up 13% year over year in Q2 thanks to the combination of higher demand and rising prices. In a shareholder letter, executives cited "continued strong travel demand" as a key reason why revenue rose 18% year over year to $2.5 billion in the period.
But one of management's biggest priorities is to boost the supply of homes available, and progress there was just as encouraging. Active listings in the second quarter rose 19% year over year and were higher in each of the company's regions. Airbnb added more new listings in Q2 than in any previous quarter, in fact.
Progress here sets the business apart from more traditional hotel and resort operators, who have constraints on how quickly they can add more supply. In contrast, Airbnb can steadily -- and cheaply -- expand its influence by making hosting easier and more mainstream.
2. Financial efficiency: Cash is king
One of the biggest benefits of running a marketplace business is its financial efficiency. After all, acting as an intermediary between sellers and buyers means you don't have the burden of fixed costs like real estate investments, depreciation, and maintenance. Most of the earnings you generate from seller fees go directly to the bottom line.
Airbnb shines in this area even though the business is still in growth mode. The company generated $4 billion of free cash flow over the previous 12 months, translating into an exceptional 43% margin.
ABNB Free Cash Flow data by YCharts
There are many benefits that flow from this success, including the fact that Airbnb can fund its own growth and doesn't need to take on expensive debt. Ample cash flow protects investors from surprise losses during cyclical downturns, too. These resources also imply higher direct shareholder returns through stock buyback spending and, down the line, a rising dividend payment.
Stay for a while
There are other factors pointing to improving returns ahead. These include the tilt toward longer stays and Airbnb's efforts to broaden its portfolio of services that it offers to hosts, to name a few. Yet there's already plenty of support for the core bullish thesis that involves the company expanding its sales footprint over the next several years while boosting profitability.
As you might expect, investors are paying a premium for these valuable assets. Airbnb is valued at 10 times annual sales compared to Booking Holdings' price-to-sales ratio of 6. A lot of optimism is reflected in that double-digit valuation, and that means higher risk of a letdown if the business stumbles in its growth path. But so far, Airbnb is fulfilling on its promise as a potentially disruptive growth stock in the travel industry.
