I just got back from two weeks in Europe with my family. We decided to sidestep the cramped comforts of a hotel, something that would've seemed outrageous in my pre-pandemic visits across the Atlantic. Since we were traveling in a group of five, it seemed as if it would be more cost-effective to go the Airbnb (ABNB 0.75%) route.
We booked four stays. We had two separate two-night stays in Paris, bookends between a visit to the Disneyland Paris resort. We also had a pair of three-night stays in Madrid and Barcelona. Would the experience leave me more bullish on the stock? Would I return home with more reservations about the investment than the actual reservations I made?
Checking in
Airbnb hit the market three years ago at $68. The stock has nearly doubled since then, but it's actually trading lower than its $144.71 close on its first day of trading. Success is always relative to your starting line, but the shares are up 57% in 2023.
Business is recovering nicely. A whopping $63.2 billion in gross bookings were made on the platform in 2022, 42% ahead of where it was a year earlier on a currency-adjusted basis. Growth has decelerated for the last three quarters -- up just 19% and 13% in the first two quarters of this year, respectively. It's still double-digit growth, and actually double where Airbnb was for the first half of 2021.
Image source: Getty Images.
Leaning on Airbnb was cheaper than booking a pair of rooms every night in France and Spain, but my stays made more than just financial sense. We wanted space, and for less than what we would be paying for traditional studio-sized hotel rooms we had two- or three-bedroom residences with full kitchens and as many as four bathrooms.
Did we have the luxury of a concierge desk downstairs and daily housekeeping? No. We traded predictability for adventure. The stays weren't perfect, and we had to replace one stay the night before our arrival. However, for every hiccup and tricky lockbox, we gained more in the immersive experience. This wasn't a sanitized hotel stay, by design. Four homeowners trusted their properties -- and their neighborhoods -- with us, and we feel we left with a better taste of Paris, Madrid, and Barcelona than if we had just grabbed a familiar and well-reviewed hotel chain.
The model works. There are now a record 7 million listings on the platform, so Airbnb has certainly resonated with property owners looking to cash in on the asset-sharing trend. The scalability of the business continues to pay off for Airbnb. It's building on last year's profitable turn. It has generated $3.9 billion in free cash flow over the past 12 months.
There are risks for investors, just as there are potential pitfalls for travelers checking into an Airbnb property. The platform has regulatory risks, just as the market has seen in New York City this month, with the crackdown on short-term rentals and new restrictions. There are also valuation risks. Fetching 35 times this year's projected earnings may not seem outrageous given the company's niche leadership, but it's highly susceptible to a global slowdown in travel.
Anyway, I'm a believer. But it didn't take me four stays in the last two weeks to get to that point. I was convinced as a customer the first time I went the Airbnb route in Pigeon Forge last year. If you're comfortable buying into travel stocks, it's hard to see why Airbnb wouldn't be near the top of your list. It's a disruptive leader, making the most of the network effect that comes with its crown.
