Despite many tech-focused enterprises putting up impressive returns in the past year and a half, they still remain well off their peak prices. This one booming business fits squarely into that category. Investors should therefore take a closer look at the opportunity.
I'm talking about Airbnb (ABNB 1.76%), which just reported what I thought was another strong quarter that benefited from healthy travel demand. Shares of this growth tech stock are currently 33% below their all-time high. Here's why it's a stock you should be buying hand over fist right now.
Recent results
Last year's robust demand trends have carried over into 2024. This is an encouraging sign, especially when you consider the state of the economy. Credit card debt is at record levels, and high interest rates and stubborn inflation have created an uncertain environment. Many retailers are expressing their struggles.
But this dynamic points to how consumer spending is leaning toward experiences nowadays, as opposed to goods that we saw during the pandemic. Airbnb benefits from this trend.
It posted revenue growth of 18% in Q1, thanks to gross bookings of $22.9 billion. There were 132.6 million nights and experiences booked on the platform in the last three months, which was up almost 10% year over year. Management called out the solar eclipse in early April as a unique event that helped support reservations in the current quarter.
Revenue beat Wall Street estimates. So did the bottom line. Diluted earnings per share came in at $0.41. That was more than double the figure for Q1 2023.
Looking ahead
This positive report didn't prevent the stock from immediately dropping 7% following the news. Investors probably weren't pleased that executives forecast Q2 revenue to be between $2.68 billion and $2.74 billion, which at the midpoint was below Wall Street's consensus analyst estimate. Management guidance would still represent 8.4% growth (at the midpoint) from the second quarter last year.
The momentum is set to continue. In the latest quarter, it was reported that Airbnb saw a 60% jump in app downloads compared to the year-ago quarter. In my opinion, this clearly shows the heightened interest in not only travel, but in Airbnb's platform. This could be a leading indicator of favorable financial results in the foreseeable future.
Valuation and quality
Airbnb is a business that is performing extremely well right now. But you wouldn't be able to tell from the valuation. The stock trades at a price-to-earnings ratio of just 19.6. That's below that of the S&P 500.
This discount doesn't make sense to me. It's not a difficult argument to make when saying that Airbnb is an above-average business that deserves a premium valuation.
Growth is strong, of course. But we can't ignore how profitable the company is either. After generating $3.8 billion of free cash flow in 2023, Airbnb raked in $1.9 billion in just the last three months. That's hard to argue with. It's something that greatly reduces financial risk for investors -- something that can't be said for many growth-oriented companies.
It proves that this is now a scaled global platform that should see outsized profitability in the years ahead. Because Airbnb doesn't invest in properties itself, it operates a lucrative asset-light business model. And this explains why the cash register is ringing.
Since its founding in 2008, Airbnb has become a well-known global brand in the travel sector. It's becoming a top choice for consumers who are looking to start making their travel plans. Plus, with the benefit of powerful network effects, there's minimal threat that Airbnb will be disrupted anytime soon.
Investors shouldn't think twice: It's best to take advantage of this opportunity and buy the stock on the dip.
