1 green flag and 1 red flag for Airbnb

Investors are in conflict over Airbnb (ABNB 2.20%) stock right now. Stocks have fallen sharply in 2022, even as the home and room rental platform is experiencing strong growth and generating impressive profits.

Wall Street is more concerned about the effect an economic downturn could have on its service, which relies on discretionary spending for many of its travel bookings. Let’s take a closer look at how this exposure to the travel industry could hurt the company in the coming quarters, as well as a big reason to still love the stock.

The Red Flag: Exposure to Vacation Travel

The main concern with Airbnb’s business is the possibility of a recession. Such a crisis would create intense pressure on travel spending, which still represents the bulk of the company’s business.

Last quarter, for example, short stays accounted for 80% of Airbnb’s sales through the end of September. There were also indications of increasing pressures on the business due to the changing macroeconomic environment. Management noted sluggish bookings among businesses and a slight slowdown in overall booking volume growth and average price per night growth.

The good news is that these issues don’t take away from Airbnb’s strong 2022 sales trends. night increased. The main fear is that these growth trends will slow significantly in the coming quarters if the global economy weakens.

The Green Flag: Experience

Airbnb has gone through periods of low growth before. It was launched in the aftermath of the Great Recession, after all, when many people were looking for ways to generate additional income from unused space.

The company aims to capitalize on a potentially similar shift in attitude over the coming quarters. It has just launched a new onboarding process aimed at facilitating the reception of owners in order to boost the offer of nights and experiences on the platform.

Airbnb’s other major competitive advantage – its ability to upgrade its platform and service offerings – is harder to quantify, so it may be underestimated on Wall Street. The company is already using new features like its “categories” navigation method to add value to guests and hosts. And the commitment is strong for these adjustments, management said recently, with the addition of categories that have seen over 300 million sessions since mid-May.

Airbnb cannot control what will happen with global vacation or business travel demand in the coming quarters. But he has enormous reach and plenty of resources he can direct towards building his platform in any type of selling environment.

These factors should support strong returns for patient investors, although the coming quarters could be unusually volatile. Its exposure to the travel industry makes it a riskier equity investment if a recession expands in 2023. But Airbnb seems well positioned to weather such a storm. Guard it growth stock on your watch list or consider adding it to your portfolio.

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