The S&P 500 Index is clawing back its losses from earlier this year, as investor sentiment starts to improve. But not all businesses are trading anywhere close to their records. One growth stock is currently 42% off its peak. However, the well-known consumer brand might still be a worthy investment candidate.
Can a $1,000 investment in shares double over the next five years? Here's the important information investors must know.
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Off to a slow start
During the three-month period that ended March 31 (first quarter of 2025), Airbnb's (ABNB -0.29%) revenue increased 6% from Q1 2024 to $2.3 billion. That gain was much slower than the 11.9% sales jump registered for all of 2024. The latest gain was driven by a 7% hike in gross booking value.
The leadership team called out North America as a weaker-performing region in the quarter. Nights and experiences booked here only rose by low-single digits, worse than any other region.
No shareholder wants to see slower growth. However, in this case, the blame might not fall squarely on Airbnb. Companies across the board keep calling out the current macro-environment, with geopolitical uncertainty, shifting trade policy, and high interest rates commanding all the attention. It makes sense that consumers might be tightening their spending a little bit.
This can have a direct impact on discretionary activities like travel. Airbnb forecasted revenue to total slightly less in Q2 than Wall Street analysts had hoped. That won't help to instill confidence right now.
Zoom out and focus on positive characteristics
For investors looking to own businesses for the long term, Airbnb provides some compelling qualities. First, the company is consistently profitable. In the past 12 months, Airbnb raked in $2.5 billion of net income, translating to a stellar net profit margin of 22%. Free cash flow is also being generated, which is used to repurchase shares.
The Airbnb brand is a key competitive advantage in the travel sector. This is evident by the fact that the company name is often used interchangeably as a verb.
Another competitive strength is the presence of a network effect. As the platform has more hosts and listings, travelers have more choices. And with more travelers looking at Airbnb to book an accommodation, hosts have greater rental opportunities to make money.
Another positive trait is Airbnb's continuous emphasis on innovation, with an aim to better serve its user base. On May 13, the business revealed a newly designed app. And there's a lot for investors to get excited about.
Airbnb introduced a services tab on its app, which allows guests to book private chefs, photography sessions, and massages, among many other items, while on vacation. New experiences are also being offered in 650 cities across the globe, with a focus on activities that provide an authentic feel.
At the end of the day, Airbnb's main objective is to get more hosts, and now service and experience vendors, to list on the platform. On the other side, the company wants travelers to keep the app on top of their minds before starting the planning process for any trip. It will be interesting to watch how these new feature launches are received. If successful, it could have a positive impact on Airbnb's financials over the long term.
Is the stock's valuation attractive?
Shares of Airbnb might be trading 42% below their peak, but that doesn't necessarily mean they provide investors with good value. As of this writing, the stock sells for a forward price-to-earnings (P/E) ratio of 30.
According to consensus analyst estimates, earnings per share are projected to grow at a compound annual rate of 11% between 2024 and 2027. If you believe this outlook is even remotely accurate, then the current valuation is too steep, which lowers the chances that the stock can double a $1,000 investment in five years.
