Airbnb's (ABNB 3.64%) stock is on fire lately. The stock price has risen 70% year to date due to a strong recovery of Airbnb's business performance.

But before rushing into buying the stock, investors should know why the stock has performed well in the last few quarters. Only then can you make an educated guess -- based on business fundamentals -- whether the stock might continue its upward trajectory.

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Airbnb survived the COVID-19 pandemic

The COVID-19 pandemic was probably the most significant challenge companies have faced in recent years. While the impact varies for different industries, tourism was among the worst hit.

For Airbnb, the blow was direct and severe. With the implementation of travel restrictions worldwide, the demand for travel and accommodations plummeted, resulting in a significant drop in Airbnb's bookings and revenue. At its lowest point, the company experienced a staggering 72% decline in bookings.

Fortunately, this dire situation proved to be temporary. In 2021, Airbnb witnessed a remarkable resurgence, with its revenue surging by an impressive 77% to reach $6 billion, surpassing its previous peak of $4.8 billion achieved in 2019. The recovery proves that humans have an enduring desire to travel.

Despite Airbnb's resurgence in 2021, it took the bears another year to become fully convinced of the resilience of its business model. In 2022, the company's revenue jumped 40% to $8.4 billion, another record. It also reached a new milestone after delivering its first profitable year with a net profit of $1.9 billion.

In short, Airbnb has survived the pandemic-related travel downturn with flying colors thanks to the strength of its business model.

Airbnb has sustained strong performance

Airbnb might have survived the pandemic, but investors were not too optimistic about its prospects in 2023 amid the deteriorating external environment. Inflation, geopolitical instability, and the ongoing threat of new COVID-19 variants have been significant risks that could derail Airbnb's upward trajectory.

Despite the negative sentiment, Airbnb kept its upward trajectory intact after reporting even stronger numbers in 2023. Revenue increased 20% and 18% in the first and second quarters of 2023 to $1.8 billion and $2.5 billion, respectively. Free cash flow came in at $1.6 billion and $900 million in the same period. That's a strong performance as the company not only sustained its top-line growth but also delivered solid cash flow.

Beyond these top-line numbers, Airbnb shared some notable operational updates. For instance, guests traveled further, with cross-border nights booked up 16% in the second quarter of 2023. They also returned to cities, with urban nights up 13% year over year. Besides, guests stayed longer on Airbnb, with year-over-year growth in long-term bookings. And above all, nights and experiences booked grew 11% to 115 million in the quarter.

Airbnb has been firing on all cylinders with solid operational and financial metrics improvements.

What's next for the company?

The near term doesn't look particularly attractive for the travel industry. Still, Airbnb guided for revenue to grow between 14% and 18% in the third quarter of 2023, albeit at a lower rate compared to the first half of 2023.

In the long term, Airbnb is actively growing its market share in the gigantic tourism industry worth trillions of dollars. It is adding new active listings, improving its core services -- such as software productivity -- and testing new products and services. Besides, with its solid balance sheet of $10.4 billion in cash, cash equivalents, short-term investments, and restricted cash, the company has all the firepower it needs to invest in growth.

In all, Airbnb's prospects remain bright both in the short and long runs.