Despite a 45% decline in its share price since the start of the year, Airbnb (ABNB -1.15%) flourished. The online accommodation market has a growing presence in the travel market, with 102 million nights and experiences booked on its platform in the first quarter of 2022 alone.
As investors dig deeper, Airbnb looks even more attractive. Many actions in the travel industry raise serious concerns, but Airbnb seems to be able to weather some of those concerns. As demand for travel grows in the long and short term, here’s why Airbnb could win out and outperform its peers in the space.
Image source: Getty Images.
1. Travel demand is growing
After several years of stifled travel, American consumers are looking forward to vacationing this summer. The US Travel Association found that travel spending in May was at an all-time high since the start of the pandemic. AAA also predicted that 48 million Americans traveled for the July 4 holiday, which was just 2% below 2019 levels. will be even busier than in May.
So far, Airbnb is capitalizing on this growing demand. In the first quarter of 2022, the company spent $17.2 billion on reservations, 73% more than the same period in 2019. This increase in the value of reservations helped the company generate 1.2 billion dollars in free movement of capital, representing a free cash flow margin of 79% in the quarter. This jaw-dropping margin likely won’t last all year, but it shows just how well Airbnb can capitalize on strong demand.
More importantly for long-term investors, the outlook for travel spending over the next few years is also shifting in favor of Airbnb. By 2026, the US Travel Association predicts that travel spending will reach $1.26 trillion (adjusted for inflation). This represents a 20% growth from 2022. $970 billion of this amount is expected to come from leisure, while business travel in 2026 is expected to be below 2019 levels.
Considering that Airbnb thrives on leisure activities, the company could benefit from this increase. But what sets Airbnb apart from its competitors?
2. Airbnb has few supply constraints
Due to the popularity of travel in the coming quarters, many investors are concerned about hotel companies having limited supply in some areas, especially cities and holiday hotspots. Airbnb, however, has over 6 million active listings to tackle this challenge, as well as multiple features that help alleviate supply bottlenecks in a specific region.
For users who don’t have a preferred vacation spot, the “I’m flexible” feature allows Airbnb to promote regions and stays that have more availability. It has helped users find homes to stay in — places they might not even have thought to search — more than 2 billion times.
Airbnb also offers a “categories” option, an alternative way to search for vacations (other than using locations). If someone wants to do a specific activity or have a home with a certain style, Airbnb can find stays to fit that while promoting areas that might not be in high demand.
These features allow Airbnb to push demand where supply is, greatly easing the bottlenecks most hospitality businesses face.
3. Satisfaction is higher than peers
If there’s one thing Airbnb has struggled with, it’s inconsistency in product quality. This is understandable given that Airbnb does not directly operate homes on the platform, but it has resulted in volatile guest satisfaction. However, many of the company’s rivals are struggling with the same problem.
Airbnb is actually one of the leaders in guest satisfaction, according to Net Promoter Scores (NPS). Other third-party platforms like Vrbo and Booking.com (BKNG -1.38%) have lower scores than Airbnb: Booking’s NPS is 25, while Vrbo’s is a negative 83, with only 7% of respondents having a high opinion of the company. By comparison, Airbnb’s NPS is 31, with more than half of respondents promoting the business and less than a quarter negatively affecting its score.
Is Airbnb a buy now?
Considering Airbnb’s advantage over its competitors, the business looks set to thrive in the short and long term. Although not a guarantee, the company has continued to innovate and develop new features. Looking at the first quarter results, these innovations seem to be bearing fruit.
Also, Airbnb is trading at a bargain today. At 21.6 times free cash flow, the company is trading at a substantial discount to traditional hospitality stocks such as Marriott International (TUE -1.04%) and Hilton around the world (HLT -1.70%).
It all combines for an attractive investment right now, and you might want to consider adding this thriving business to your wallet.
Jamie Louko has positions in Airbnb, Inc. The Motley Fool has positions in and recommends Airbnb, Inc. and Booking Holdings. The Motley Fool recommends Marriott International and recommends the following options: Long January 2023 $115 calls on Marriott International. The Motley Fool has a disclosure policy.
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