For most of 2023, investors have seen myriad headlines about artificial intelligence (AI). More times than not, at least one of the Magnificent Seven stocks of Microsoft, Alphabet, Amazon, Apple, Tesla, Nvidia, and Meta Platforms is mentioned when it comes to the latest developments in AI. However, last week the artificial intelligence (AI) world welcomed a newcomer.
Travel and hospitality platform Airbnb (ABNB 0.75%) made a splash after its acquisition of a start-up called GamePlanner.AI. Let's explore what this deal is all about and why Airbnb's mission to bring AI to the travel space could be a total game changer.
Another acquisition?
Airbnb has a rich acquisition history, with almost all of its deals being in the travel space. Airbnb has acquired smaller competitors as well as unique travel-focused start-ups that the company can use to create more enhanced features within its platform. For this reason, the deal with GamePlanner.AI is, at the very least, a bit of a head-scratcher. What could a hospitality platform possibly want with an AI company?
Image source: Getty Images.
How can AI help the travel industry?
Admittedly, there is not a whole lot that is known about GamePlanner.AI. Prior to Airbnb's acquisition, the start-up was operating in "stealth mode." This is a term used to describe start-ups that are not yet commercially marketing products and services at scale. Moreover, sometimes stealth start-ups have raised very little (if any) outside funding from venture capital (VC) or private equity firms.
What has been revealed, though, is pretty interesting. GamePlanner.AI was co-founded by a pair of entrepreneurs named Adam Cheyer and Siamak Hodjat. Cheyer previously co-founded Siri, the voice recognition software that was acquired by Apple and is native to its hardware devices. Moreover, GamePlanner.AI only has 12 employees, indicating that the company is quite small from a headcount perspective. Perhaps the most eyebrow-raising tidbit is that Airbnb reportedly acquired GamePlanner.AI for $200 million.
In a way, this deal is eerily similar to Meta Platforms' (formerly Facebook) takeover of Instagram. When Instagram was acquired back in 2012, the company reportedly only had 13 employees and was pre-revenue. And yet, given the potential of its catchy photo filters, the rise of social media influencers, and increasing competition from the likes of Snap, Meta's CEO Mark Zuckerberg took a bet and offered Instagram's founders $1 billion.
I will say that where these deals differ is how Airbnb plans to use GamePlanner.AI. When it comes to Meta, it was fairly obvious that Zuckerberg did not want to roll the dice on Instagram's growth potential versus Facebook. Therefore, he offered a premium for the acquisition and immediately was able to bolster his social media and advertising empire. But for Airbnb, what does a stealth start-up really represent?
According to a panel discussion on CNBC, Airbnb is planning to use GamePlanner.AI as a "travel concierge." More specifically, by leveraging generative AI and machine learning, Airbnb is looking to build a more sophisticated platform. By analyzing data on consumer travel trends, Airbnb can better market experiences or even room sizes to different people based on a number of demographics.
The long-term benefits aren't difficult to see here. If Airbnb is able to correctly assess or predict customer preferences, it's likely that users will stay on its platform and begin to use it at a higher frequency than other hospitality companies. By creating a more engaged and sticky user base, Airbnb is potentially unlocking a new phase of accelerating revenue and profit growth.
Is Airbnb stock a buy?
One of the most interesting and closely followed investors on Wall Street is Bill Ackman, the CEO of hedge fund Pershing Square Capital Management. One of Ackman's top holdings is hotel chain Hilton Worldwide. In fact, according to Pershing Square's latest filings, the hedge fund manager added nearly 1 million shares to his Hilton position during the third quarter.
During an interview a few months ago, Ackman explained that his stance on Hilton remains bullish even during times of high inflation. The crux of his thesis was built on Hilton's and other notable brands' ability to command pricing power. While this is good for Hilton, I think Ackman's broader point can be applied across the entirety of the travel spectrum.
The chart above is a simple illustration of Airbnb stock benchmarked against a number of cohorts in the travel and hospitality space. The analysis includes hotel chains, airlines, and travel planning platforms such as Expedia or Booking.com. Investors can see that over the past year, Airbnb stock has increased nearly 33% -- the third-highest among this cohort, handily beating the S&P 500's return of 15%. Interestingly, the top two performers in the chart above are Airbnb's top competitors: Expedia and Booking.com. This is really intriguing because it shows me that the real winners of the travel industry are the tech-enabled platforms that help plan trips -- not the service providers like hotels and airlines.
ABNB P/E Ratio (Forward) data by YCharts.
To add another layer to this valuation analysis, I've removed the airline and hotel chains and just measured Airbnb against other travel planning applications. Investors can see that on a forward price-to-earnings (P/E) multiple basis, Airbnb trades at a much steeper discount than Booking.com and TripAdvisor. In fact, Airbnb's forward P/E of 15 is far lower than that of the S&P 500, which trades at a forward earnings multiple of around 20.
To me, the disparity between Airbnb and its peers, as well as its discount to the broader market, represents a compelling buying opportunity. The company just made its first public move to integrate AI deeper into its platform. While the prospects of the GamePlanner.AI deal are still early, the idea of a smart travel concierge seems like a natural next step in Airbnb's evolution. Moreover, given the performance of travel platform stocks in general, I think now is a unique opportunity to dollar-cost average into Airbnb stock at a bargain price.
