Is it a good time to buy Airbnb?

Since Airbnbit is (ABNB -0.27%) IPO in December 2020, the stock provided a less than inspiring return of minus 13%. Most of this is not his fault. After all, the company has faced (and continues to face) an extremely difficult environment, including a tech stock market crash, a global pandemic, rising interest rates and high inflation for decades.

Last year gave the business a much-needed boost post-COVID travel boom, but the shares are still 18% below their original trading price. Today, as recession worries mount, investors are rightly wondering if now is the right time to buy Airbnb. Let’s take a closer look to see.

The future of Airbnb

As if the recent challenges weren’t enough, it seems increasingly likely that the economy is heading into a recession. During recessions, economic spending, especially luxury spending on things like travel, declines, which would clearly have a negative impact on Airbnb.

Currently, there is no indication that travel spending is slowing. In fact, the second quarter of 2022 was the first season that travel resumed at pre-pandemic levels. Airbnb revenue exceeded Q2 2019 levels by 78% and nightly bookings increased by 24%. Earnings per share and earnings before income tax, depreciation and amortization (EBITDA) were 57% and 46%, respectively.

The vacation rental booking platform has over 4 million hosts, making it the largest of its kind in the world. Even in times of economic downturn, the business is unlikely to die out. But his financial situation and his lack of profit make raise some concerns on its ability to weather the volatile times ahead.

Being a tech startup, especially one that is revolutionizing the hosting industry, requires a lot of capital. Marketing expenditures, platform developments and monetary investments to pursue growth have eaten away at the company’s earnings. But it looks like the economies of scale are starting to work in its favor as the company gains more bookings and guests.

Airbnb’s net loss margins are improving year over year, with the company posting a net loss of $68 million, well above 2019 levels when its net loss was $297 million. dollars. The company is therefore moving in the right direction.

Does today’s price make it a worthwhile purchase?

Airbnb currently trades approximately nine times its forward sales and 41 times its price/earnings ratio report. This is much higher than its two closest competitors, Expedia (the parent company of VRBO) and Reserve creditstherefore Airbnb stock is still trading at a slight premium despite its lower price.

Given that its earnings consistently show a move in the right direction and that long-term trends favor its business model, I still think Airbnb is a worthwhile buy, even at today’s high prices. However, there is no guarantee that it will develop as many investors hope or believe.

Personally, I believe in Airbnb’s business model and think it’s only a matter of time before the company turns a profit and the stock skyrockets. Preferences tend towards vacation accommodations over hotels and resorts because they offer more space, privacy, rental options and unique accommodations than traditional accommodation simply cannot. not offer.

With its ability to expand into new international markets and the rapid number of hosts joining the platform, I believe there is still huge room for growth for Airbnb. I bought shares of Airbnb at latest market decline and I intend to hold onto my investment for the next 10-20 years to hopefully see the potential of the business unfold.

Cautious investors may want to wait and see how this growth stock fares in the years to come. More risk-tolerant investors could use current prices as a buying opportunity.

Liz Brumer Smith has positions in Airbnb, Inc. The Motley Fool has positions in and recommends Airbnb, Inc. and Booking Holdings. The Motley Fool has a disclosure policy.

Comments are closed.