2022 has been a difficult year for many stocks, and Airbnb (ABNB 3.64%) is no exception. The stock is down 44% year-to-date and 48% from its early 2022 high. Looking back, the news isn’t much better. Since its IPO, Airbnb is down 33%, while the S&P500 increased by 2%.
Looks like the stock isn’t doing so well, right? I disagree: The recent stock slump has provided an attractive opportunity to buy shares of a company with strong business results and a bright future.
A record quarter
Let’s start by looking at Airbnb’s third quarter 2022 results, which it recently released. Revenue for the quarter was $2.9 billion and net profit was $1.2 billion. Both were records for the company. Impressive, 42% of Airbnb revenue fell to the bottom line.
Year-over-year, revenue increased 29% and net profit 46%, and that includes the negative currency impact. Without it, the growth would have been 36% and 61%, respectively. Regardless, Airbnb’s financial performance this quarter has been strong.
This financial performance was driven by equally impressive activity on the platform. Nights and experiences booked increased 25% to 99.7 million, and the gross value of bookings – the sum of all transactions on the platform – reached $15.6 billion, an increase of 31%.
Airbnb can be recession proof
On the earnings call, management repeatedly said it had seen no evidence of a slowdown due to the economic environment. In fact, CEO Brian Chesky thinks Airbnb is uniquely suited to weather an economic downturn.
During the 2008 financial crisis, Airbnb saw many new hosts join in to find additional income. Chesky expects the same to happen if we see a recession in the coming months. Engaging hosts is an important part of Airbnb’s business model, and the company recently made improvements to the platform that should help hosts get the most out of their experience.
AirCover, introduced last year, is an insurance policy that protects both hosts and guests against unexpected negative experiences, a common complaint for platform users. Additionally, the new “categories” feature enhances the search function in a way that helps hosts show their listings to more potential customers.
The Chinese Opportunity
Growth in the Asia-Pacific region has been strong for Airbnb. Excluding China, this region grew by 65% in Q3. However, there is a huge potential opportunity to be seized in China when the country lifts its COVID-19 restrictions.
Despite Airbnb’s decision to shut down the domestic listing business in China, the company still focuses on travelers leaving China as potential Airbnb guests in other countries. This focus on outbound business from China will focus on neighboring counties in the short term, and then eventually Europe and the United States. The regional rollout strategy aims to ensure the offer is ready once travel from China resumes.
Airbnb’s stock is cheaper than usual
Perhaps the most compelling reason to consider buying Airbnb stock right now is its valuation. During its life as a public company, Airbnb price/sales ratio (P/S) reached 36. Currently, the stock is trading for a P/S of 8.5, slightly above its all-time low of 7.9. On a forward sales basis, the P/S multiple is even cheaper, at 7.4.
Considering its recent financial performance as well as its future prospects, Airbnb looks like a company well worth its current valuation. I never back down when buying a business, but I think now is the right time to open a new position or add to an existing position.
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