Spring is in the air and people are eager to travel as COVID cases decline from their peak in January 2022. Last week, MasterCard and Visa announced earnings above expectations, in part thanks to a resumption of cross-border travel, a key measure for the two payments companies.
Mastercard said cross-border travel in March was above 2019 levels for the first time since the pandemic began. And Visa’s Chief Financial Officer, Vasant Prabhu, observed that “pent-up demand for travel remains very high. And early indications of summer bookings etc, as you’ve heard from other people, have been very good. “.
With these positive signs for travel in mind, investors might want to look Airbnb (ABNB -1.04%) Stock. Here are two reasons why the vacation rental and experiences business could rebound from recent lows.
Image source: Airbnb.
1. Airbnb business is stronger than ever
Although Airbnb has always been a seasonal business – users are booking more nights and experiences during Airbnb’s second and third quarters – there has been an overall shift in the way people travel, allowing company to reap the benefits.
At The latest call on Airbnb earnings, CEO Brian Chesky noted how the company has benefited from changing consumer behavior due to the pandemic, saying, “We’re in the midst of a revolution in travel because people have a new flexibility in how they travel. live and work”. Flexibility has increased average trip length by around 15% over the past two years, with stays longer than seven days now accounting for almost half of all gross nights booked.
The paradigm shift was manifested in Airbnb’s fourth quarter 2021 results, which were the best ever in terms of revenue and net income. The company generated approximately $1.5 billion in revenue and $55 million in net profit, up 38% and 115% from the fourth quarter of 2019, respectively. Additionally, Airbnb has posted four consecutive quarters of free movement of capital — the money left over after all capital expenditures — despite lower overall travel than before the pandemic.
2. Airbnb shares look cheaper than ever
Airbnb stock is down about 28% from its 52-week highs and 11% since the start of the year. To value a growth stock like Airbnb, investors typically look to its price/sales ratio (P/S) — a company’s market cap divided by its total sales over the past 12 months — since it doesn’t yet have positive earnings.
Recently, Airbnb traded at a P/S ratio of around 16, close to an all-time low for the company since its IPO in late 2020. So while the stock price of ‘Airbnb is trading close to where it started trading when it first went public, its total sales have increased by 77% from 2020 to 2021.
Additionally, Airbnb has an outstanding balance sheet with over $6 billion in net cash, meaning it will likely not have to take on adverse loans in the future. higher interest rate market conditions of the present. With this flexibility, Airbnb can continue to invest heavily in product development — it’s spent more than $4 billion over the past two years — to innovate with features like “I’m Flexible,” a way to flexible customers where and when they travel to seek lower cost stays and experiences Since its launch, “I’m Flexible” has been used nearly 800 million times by users.
What could go wrong?
Airbnb, a de facto middleman between travelers and hosts, will likely always depend on its hosts to provide quality accommodations for its travelers. If the business cannot increase its number of hosts, its revenue growth may be limited because there are only a limited number of places customers can stay. And since going public in late 2020, Airbnb has struggled with this exact problem, with the total number of hosts stuck at 4 million.
Management is well aware of this challenge and is taking steps to increase its number of hosts. Specifically, Airbnb has started offering dedicated support to “Superhosts” — the highest-rated and most experienced — in hopes of resolving guest issues faster. Additionally, the company recently began offering damage protection and “Aircover” liability insurance of up to $1 million for each host to ease concerns. Airbnb hopes to “unlock the next generation of hosts” with these protections and incentives.
Is Airbnb stock a buy today?
Several indicators point to a boom in the travel industry this spring and summer, and Airbnb is one of many travel actions well placed to take advantage of it. Check out the company’s first quarter 2022 results on Tuesday, May 3 to see if it continued to benefit from a remote work environment and if it was able to increase its host count with its new initiatives. If Airbnb is successful in these areas and management provides promising guidance for the rest of 2022, expect its stock to grow in 2022 and beyond.
Collin Brantmeyer has positions at Airbnb, Inc., Mastercard and Visa. The Motley Fool holds positions and recommends Airbnb, Inc., Mastercard and Visa. The Motley Fool has a disclosure policy.
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