- The share price of Airbnb, leader in colocation, has been stable since the beginning of the year
- Demand in Europe a concern as Ukraine-Russia conflict continues
- Long-term investors could consider buying ABNB shares at current levels
Hosting and experiences platform Airbnb (NASDAQ:) The stock is up just 0.3% since the start of 2022. Additionally, stocks are down 14.1% over the past 12 months. By comparison, the The index is up 10.9% over the past 52 weeks.
On Nov. 17, 2021, shares of the San Francisco-based travel website surged above $212 to hit an all-time high. The stock’s 52-week range has been $129.71-$212.58, while the market capitalization (cap) stands at $107.4 billion.
Recent metrics suggest that short-term rental listings on Airbnb include approximately a fifth of the accommodation offer in the United States. Over the past month, his website received 78.4 million visits, where the average visit lasted nearly 9 minutes.
In mid-February, the company released its Fourth quarter and full year financial data. totaled $1.5 billion, up 78% year-over-year (YoY), and exceeded Q4 2019 levels by 38%. Net income was $55 million, the strongest fourth quarter ever, and gross bookings of $11.3 billion beat Street estimates.
During the first quarter, Airbnb expects to generate between $1.41 billion and $1.48 billion in revenue. In its letter to shareholders, management expressed optimism for the coming months and noted:
“For the first time since the start of the pandemic, we expect nights and experiences booked in Q1 2022 to significantly exceed Q1 2019 levels, which we believe will result in our best nights and experiences booked quarterly records ever recorded.”
Prior to the fourth quarter earnings release, Airbnb stock was around $180 and as of Friday’s close was $167, down 7% since the earnings announcement.
What to expect from Airbnb stock
Among 39 analysts interrogates via invest.comthe ABNB stock has a “neutral” rating.
Chart: Investing.com
Wall Street also has a 12-month median price target of $198.62 for the stock, implying an increase of more than 18% from current levels. The 12-month price range is currently between $150 and $250.
However, according to a number of valuation models, including P/E or P/S multiples or terminal values, the average fair value of Airbnb shares on InvestingPro is $145.66.
In other words, the fundamental valuation suggests that shares of the travel facilitator could fall by almost 13%.
We can also look at Airbnb’s financial health, determined by ranking over 100 factors against its peers in the consumer discretionary sector.
For example, in terms of cash flow and growth, it scores 4 out of 5. Its overall score of 3 points is a good performance ranking.
Currently, ABNB’s P/B and P/S ratios are 22.2x and 17.7x. Comparable metrics for peers are 2.1x and 8.6x, respectively. These numbers show that despite the recent price drop, the fundamental valuation of ABNB shares is still rich.
We expect Airbnb shares to build a base between $150 and $175 in the coming weeks. Subsequently, stocks could potentially start a new stage.
Adding ABNB to wallets
Airbnb bulls who aren’t concerned about short-term volatility might consider investing now. Their target price would be $198.62, according to analyst forecasts.
Alternatively, investors could consider buying an exchange-traded fund (ETF) that holds ABNB shares as an asset. Examples include:
- First Trust US Equity Opportunities ETF (NYSE:)
- ETFMG Travel Tech ETF (NYSE:)
- AdvisorShares Hotel ETF (NYSE:)
- ETF SoFi Gig Economy (NASDAQ:)
Finally, investors expecting ABNB stock to rebound in the coming weeks might consider setting up a bullish buy spread.
Most options strategies are not suitable for retail investors. Therefore, the following discussion of ABNB shares is offered for educational purposes and not as an actual strategy for the average retail investor to follow.
Bull Call Spread on Airbnb shares
Price at time of writing: $167
In a bullish call spread, a trader has a long call with a lower strike price and a short call with a higher strike price. Both legs of the trade have the same underlying stock (i.e. Airbnb) and the same expiration date.
The trader wants the price of ABNB shares to rise. In a bullish buy spread, the levels of potential profit and potential loss are limited. The transaction is established for a net cost (or net debit), which represents the maximum loss.
Today’s bullish call spread trade involves buying the 170 strike call expiring on June 17 for $16.10 and selling the 180 strike call for $11.85.
Buying this buy spread costs the investor about $4.25, or $425 per contract, which is also the maximum risk for this trade.
It should be noted that the trader could easily lose this amount if the position is held until expiry and both legs expire worthless, i.e. if the ABNB stock price at the expiry is lower than the strike price of the long call (or $170 in our example).
To calculate the maximum potential gain, one can subtract the premium paid from the difference between the two strikes, and multiply the result by 100. In other words: ($10 – $4.25) x 100 = $575.
The trader will make this maximum profit if the Airbnb stock price is at or above the short call strike price (upper strike price) at expiration (or $180 in our example).
Conclusion
Over the past few months, Airbnb stock has come under significant pressure, and the decline in the share price has improved the margin of safety for investors who may consider investing soon.
Alternatively, experienced traders could also set up options trading to profit from a possible rise in the price of Airbnb shares.
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