Airbnb (ABNB -0.27%) reshaped the travel and hospitality space, and the company is back to posting substantial sales growth now that pandemic-related pressures have eased. However, the stock has seen volatile swings since its IPO at the end of 2020, and the company’s stock price is now down about 21% from the market’s close on the trading day. his public debut.
Is it the right time to invest in the rental specialist? Here’s an overview of risk factors and company strengths that could determine the stock’s long-term performance.
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Airbnb could be a huge long-term winner
keith noonan: While Airbnb’s share price has fallen about 32% year-to-date, that performance has much more to do with macroeconomic pressures and general market appetite for growth stocks than it does state of the business. The travel specialist grew sales 58% year-over-year last quarter and 73% from the second quarter of 2019, and the company appears well positioned for profitable long-term expansion.
Airbnb posted an 81% gross margin last quarter and the company reported record free cash flow (FCF) and net income for the period. The company has now generated $2.9 billion in FCF over the 12-month period, and performance on key metrics is expected to be even stronger in the third quarter – which is typically the strongest quarter ever. business thanks to the summer travel season.
Through the challenges of the pandemic and subsequent recovery momentum in the travel industry, Airbnb has shown its business to be highly adaptable, and the company is only scratching the surface of its long-term growth potential. term.
High levels of inflation, rising interest rates and other factors that shape bearish market trends have caused the company’s valuation to drop to around $73 billion, and the stock now trades at around 8.8 times this year’s expected sales and 39 times this year’s expected adjusted earnings. . While this growth-dependent valuation could expose Airbnb’s stock to outsized volatility if the broader market continues to struggle in the near term, the long-term outlook remains very bright.
Airbnb has a business that its users love, the company has shown it can scale profitably, and I think there’s a very good chance that investors who take a buy-and-hold approach with the shares enjoy crushing returns in the market.
A bear against Airbnb
Parkev Tatevosyan: Airbnb is an excellent travel agency with an asset-light business model. It does not own or operate any of the properties listed on the platform. While that might be a selling point for investors, it’s not as appealing a feature for travelers. Since Airbnb does not operate the properties, it cannot guarantee quality or consistency. This is left to individual hosts who serve customers more closely.
Admittedly, this feature hasn’t stopped Airbnb from growing its revenue from $2.5 billion in 2017 to $6 billion in 2021; however, this could hamper its ability to reach $20 billion or $40 billion in sales. To achieve wider adoption, Airbnb needs to convince travelers to believe they will get a good experience when choosing the platform.
Many people only go on vacation once or twice a year, so they might not be willing to take a chance on Airbnb. Rivals in the hotel and resort industry have earned a reputation for delivering a consistent product, which could be seen as a lack of variation.
However, vacations are different enough for people’s everyday lives that this variation may not be what they are looking for when choosing a rental provider. If the business model proved to be an obstacle to growth, it would probably be irreparable.
It’s not like Airbnb can quickly buy up every property listed on the platform. Certainly, the downside risk of the business model could be a low probability event. However, the magnitude of the result makes it a bearish case worth considering.
Is it time to buy this growth stock?
Airbnb is an innovative and well-managed company, but the Stock is not without risk. The company has a valuation dependent on growth, and continuing to increase sales at a rapid pace could be much more difficult if the company cannot continue to attract new users to its platform in significant numbers.
On the other hand, Airbnb has a strong position in its industry, and the stock could deliver impressive returns if the company continues to grow profitably.
For those worried about the sustainability of expanding sales in the business niche or those looking to avoid growth-dependent businesses, Airbnb is probably not a good choice. But for investors willing to take on some risk and volatility, the stock offers huge upside potential at current prices.
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