Investors aren't sure what to make of Airbnb (ABNB 0.75%) stock these days. The home-sharing rental platform hasn't kept up with the stock market rally in the past year and is still trading below its pandemic high. Shares are down 22% in the past three years as compared to a 30% rally in the S&P 500.
That underperformance can be tied to Wall Street's worries that Airbnb is running out of room to grow in its more mature markets around Europe and the U.S. But there are reasons to like this stock right now, despite those concerns. Let's take a look at the most compelling ones.
1. Solid engagement trends
At first glance, Airbnb's growth trends appear unimpressive. Bookings rose 12% year over year to close out 2023, decelerating from the previous quarter's 14% increase.
Yet Airbnb is still enjoying excellent engagement. Booking volumes and pricing were both up in Q4, and management said they accelerated as the quarter progressed. Its strategy of making hosting more mainstream is paying dividends with active listings rising 18% year over year. The number of guests trying out the booking platform for the first time is trending upward as well.
Meanwhile, the company is pushing deeper into international markets like Germany and Brazil, which aren't as well penetrated as the U.S. "We've made significant progress across our strategic priorities," management told investors in mid-February.
2. Financial successes
It's still early in Airbnb's growth story, but the company already has a level of financial strength you would expect to see from a much more established business. The company generated $2.9 billion of adjusted net income last year, translating to a 29% net profit margin. Free cash flow was even higher, up 12% to $3.8 billion. These gains were powered by the combination of strong bookings growth and significant cost cuts.
Data by YCharts.
That cash flow is allowing Airbnb to invest more heavily in growth initiatives while returning capital to shareholders. Management spent $2.3 billion on stock buybacks last year, reducing the outstanding share count by 2.6%.
3. Price and value
As you might expect, you'll pay a premium to own this high-performing business. Airbnb stock is priced at nearly 11 times sales as of this writing. There are much cheaper options in the travel industry, including Expedia, but Airbnb's valuation is far below its record high from early 2021. It's also more profitable than Expedia already with its lead likely to expand in 2024 and beyond.
Investors should follow key metrics like bookings trends and free cash flow for signs the business is maintaining its positive momentum. In the near term, management is forecasting slower sales growth and higher earnings in the first quarter, mainly due to the timing of the Easter holiday in 2024.
Looking further out, Wall Street analysts expect sales to expand 12% in 2024 following last year's 17% increase. Growth investors might prefer to see stronger top line estimates, but shareholders can still see solid returns from holding this stock as Airbnb gains market share and boosts profitability over the next several years.
