Airbnb (ABNB -0.27%) made a dramatic recovery from the pandemic last year, although its stock reacted the opposite way; after soaring after its initial public offering (IPO), when the company posted a decline in sales, the share price is now down 32% in 2022 as it continues to show robust growth .
There may be several explanations for this. The skyrocketing valuation required some readjustment, and growth stocks are being neglected in an unstable macro environment. And perhaps the key is that management expects growth to slow. After a huge rebound, is Airbnb still a growth stock?
A resilient model
Airbnb demonstrated its market power last year by starting to recover even when travel was curtailed. In the second quarter of 2021, a sales increase of almost 300% year-over-year completely erased the decline of the pandemic, exceeding the 2019 figure by 10%. It maintained high levels of growth while over the past year, culminating in a 58% year-over-year sales increase in the second quarter of 2022.
The company’s differentiated travel model has proven to be a huge success, especially standing out during the pandemic. Travelers flocked to its accessible locations when travel restrictions kept many traditional accommodation options closed, and guests booked tours for longer stays. Airbnb’s simple formula has taken vacation rentals, previously a fragmented cottage industry, and unified them in one place with rules and reviews for a more reliable and enjoyable experience. The flywheel effect means that as more people explore listings, more hosts connect with more listings, which attracts more viewers. Management continues to upgrade the platform for hosts and vacationers with summer and winter “releases.”
Notable second quarter results include 103 million nights and experiences booked, its highest quarterly number ever, and net income of $379 million. Airbnb generated $2.9 billion in the past 12 months, ending the second quarter with $10 billion in cash on its balance sheet.
Is its market saturated?
Even the formidable Airbnb does not foresee strong growth in the near future. Management expects sales to rise 24% to 29% to around $2.8 billion, which would be its highest quarterly revenue on record. However, this is a marked slowdown from some of the faster year-over-year sales increases over the past year. Yet Airbnb also expects to maintain profitability, and that’s what investors should be looking for.
What does this mean for future growth opportunities? I think there are still a lot of ways for Airbnb to grow. The travel industry is expected to be a market of over $700 billion in 2022, according to Statista, and grow at a compound annual growth rate (CAGR) of 8.5%, reaching nearly $1 trillion in by 2026. As big as it is today, Airbnb has a small slice. As it continues to grow at a faster rate than most of its competitors, it is capturing significant market share. Seventy-three percent of all travel and tourism revenues are expected to be online by 2026, giving Airbnb an edge over traditional competitors.
It is also still smaller in size compared to some of its competitors, such as Marriott International, Reserve credits, Hilton Worldwide Holdingsand Hyatt Hotels.
ABNB Income (TTM) given by Y-Charts
Lots of growth at a slow pace
Growth is decelerating from rebound levels, but is strong and should remain so. The consensus on average Wall Street earnings is a 42% increase from 2021 levels this year.
As travel continues to go from strength to strength and Airbnb introduces new features and enhancements to its platform, it has a long streak of growth ahead of it. It may be triple digit growth, but this disruptive company has enormous potential.
Jennifer Sabil has positions in Airbnb, Inc. The Motley Fool has positions in and recommends Airbnb, Inc. and Booking Holdings. The Motley Fool recommends Hyatt Hotels and Marriott International and recommends the following options: Long Calls January 2023 at $115 on Marriott International. The Motley Fool has a disclosure policy.
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