Since Airbnb's (ABNB -3.18%) IPO in December 2020, the stock has provided a less-than-inspiring return of negative 13%. Most of this is at no fault of its own. After all, the company faced (and continues to face) an extremely challenging environment, including a tech stock market crash, a global pandemic, rising interest rates, and decades-high inflation.
The last year provided a much-needed boost for the company thanks to the post-COVID travel boom, yet the shares still sit 18% below their initial trade price. Now, with recession worries mounting, investors are rightfully wondering if right now is the right time to buy Airbnb. Let's take a closer look to see.
The future of Airbnb
As if recent challenges weren't enough, it's seeming more and more likely that the economy is headed for a recession. During recessions, economic spending, particularly luxury spending on things like travel, recedes -- which would clearly have a negative impact on Airbnb.
Right now, there's no indication that travel spending is slowing. In fact, Q2 2022 was the first season that travel resumed to pre-pandemic levels. Airbnb's revenue exceeded Q2 2019 levels by 78% and nightly bookings were up 24%. Earnings per share and earnings before taxes income, deprecation, and amortization (EBITDA) were 57% and 46%, respectively.
The vacation rental booking platform has over 4 million hosts, making it the largest of its kind in the world. Even amid an economic downturn, it's unlikely the company will disappear. But its financial position and lack of profit do raise some concerns over its ability to overcome the volatile times ahead.
Being a tech start-up, especially one that is revolutionizing the lodging industry, requires a lot of capital. Marketing expenses, platform developments, and monetary investments to further growth have eaten into the company's earnings. But it seems that economies of scale are starting to work in its favor as the business gains more bookings and hosts.
Airbnb's net loss margins are improving year over year, with the company generating a net loss of $68 million -- which is far better than 2019 levels when its net loss was $297 million. So the company is headed in the right direction.
Does today's price make it a worthwhile buy?
Airbnb is currently trading around nine times its forward sales and 41 times its price-to-earnings ratio. This is much higher than its two closest competitors, Expedia (the parent company of VRBO) and Booking Holdings, so Airbnb stock is still trading at a slight premium despite its lower share price.
Given that its earnings are consistently showing a move in the right direction and long-term trends favor its business model, I still think Airbnb is a worthy buy even at today's elevated pricing. However, there is no guarantee it will grow as many investors hope or believe.
I personally believe in Airbnb's business model and think it's simply a matter of time before the company turns a profit and the stock soars. Preferences are trending toward vacation housing over hotels and resorts because they offer more space, privacy, rental options, and unique housing, something traditional lodging simply can't provide.
With its opportunity to expand into new international markets and the rapid number of hosts that are joining the platform, I think there's still tremendous room for Airbnb to grow. I bought shares of Airbnb in the last market dip and plan to hold my investment for the next 10 to 20 years to hopefully see the company's potential come to fruition.
Cautious investors may want to wait and see how this growth stock performs in the coming years. More risk-tolerant investors could use today's pricing as a buying opportunity.
