When markets take a turn for the worse, separating the wheat from the chaff becomes even more essential for investing. This statement is particularly relevant in the context of the current market downturn, as investors are abandoning growth stocks indiscriminately without looking at their fundamentals and future prospects.
Airbnb (NASDAQ:) is an example of a good company hurt by a weak market. Shares of the global vacation home rental platform have fallen around 44% in the past three months amid a massive exit of investors from high-growth stocks.
As the Federal Reserve aggressively tightens monetary conditions — a move that could plunge the economy into a recession — the rush to sell has devastated the scores of virtually every tech company that has gone public in the United States during the pandemic.
As a result, more than 80% of tech-related initial public offerings since March 2020 are trading below their listing price, according to data compiled by Bloomberg which has reviewed IPOs of at least $500 million. .
No one can guess how long the current sell-off will continue, but there are strong reasons to believe that ABNB is a solid travel stock to hold in a long-term portfolio.
First, the San Francisco-based booking platform has developed a business model flexible enough to deal with different economic challenges. The most significant evidence of this adaptability came during the pandemic when travel demand suddenly plunged, casting doubts on the future of a company made public during one of the greatest health crises in modern history. .
But in these two years of upheaval, Airbnb has not only weathered the pandemic but also thrived, achieving the best year in company history in 2021.
The company quickly restructured its app to take advantage of a new world of travel thanks to the flexibility offered by new remote working policies that allowed people to disperse to thousands of cities and stay for weeks, months, even entire seasons at a time. During this time, Airbnb undertook the biggest overhaul of its app since its inception, adding more than 100 new features that promise to streamline the process for guests and hosts.
The best summer ever
Second, little evidence suggests people will stop spending on travel even if a recession hits in the next 12 months.
IATA Director General Willie Walsh told a gathering of airline CEOs last month that experience suggests the impact of an economic downturn won’t be so bad for the travel industry. He pointed to the global financial collapse of 2008, after which passenger numbers remained stable in 2009 and showed strong growth in 2010.
In its latest, Airbnb said the booking platform expects this summer to be one of the best the industry has ever seen, as travelers release pent-up demand and head to destinations remote locations and tourist hotspots.
Chief Executive Brian Chesky wrote in a letter to shareholders:
“As we approach the start of the travel recovery that began last year, we are particularly encouraged by the cumulative growth we are seeing in North America. U.S. domestic demand this year has so far exceeded our internal expectations, and we are encouraged by U.S. international bookings surpassing 2019 levels.”
One of the reasons that kept investors from buying ABNB was the stock’s high valuation relative to its competitors. But that changed after the recent sale. Airbnb is now selling about 9 times its sales for the 12-month period, up from 14 times in early May.
Conclusion
The current risk-averse environment makes many high-growth technology companies unattractive. But ABNB is not part of this group, in our view. The company has what it takes not only to survive, but also to grow in this difficult environment. The stock’s 44% drop in the last quarter provides a good entry point for long-term investors.
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