Why ABNB Stock is not a good reopening game at its current levels

With Airbnb (NASDAQ:ABNB) unlikely to benefit from reopening economies as much as conventional hotels and still facing multiple other challenges, I continue to recommend selling ABNB shares.

Source: BigTunaOnline / Shutterstock.com

Also, the extremely high valuation of the stocks relative to other names in the accommodation industry makes me hesitate to recommend the name at its current levels.

Unlikely to benefit from reopening

During some of the worst times of the pandemic, almost exactly a year ago, my wife and I were traveling the southern United States, as part of our greatly altered honeymoon. (Originally we were to go to Poland and Belarus; needless to say, we never made it overseas).

During our vacation, we stayed at a handful of mid-range hotels in five different cities: Memphis and Nashville, Tennessee; Savannah, Georgia; Charleston, South Carolina and Biloxi, Mississippi.

Even though we were in some of the more lax lockdown states, the hotels were, for the most part, totally deserted. With the exception of Biloxi, where the casinos reopened the day after we arrived, we hardly saw anyone else staying in the hotels with us.

And it made sense that, with intense fear of the coronavirus still somewhat high, very few people wanted to stay in the same building as strangers.

Conversely, I think in all likelihood Airbnb’s business was much less devastated, simply because consumers staying in Airbnb locations could be assured that they wouldn’t have to physically interact with anyone outside. of their travel groups.

As a result, I think a lot of people have probably used the service to “get away from it all” during blockages.

Further supporting my claim, in the first trimester, when there was still significant fear about the coronavirus, Marriott’s (NASDAQ:TUE) System-wide comparable constant dollar revenue per available room fell 59.1% globally, while Airbnb’s gross bookings value jumped more than 50% from the previous year. year before and his income increased by 5%.

In the same way, Hyatt (NYSE:H) System-wide comparable revenue per available room fell nearly 49% in the first quarter.

Larger returns should lead to greater appreciation of stocks

Given that most conventional hotel chains have apparently been taken a lot harder on than Airbnb during the pandemic, it makes sense to assume that conventional hotel profits will rebound much more now that the pandemic is largely over. In addition, conventional hotels are expected to benefit far more than Airbnb from pent-up demand as well as the return of business travel. (I just don’t see a lot of high profile sales professionals staying in Airbnb homes during their business trips).

And since, as the old saying goes, “profits are breastmilk from stocks,” conventional hotel stocks should be about to rise a lot more than ABNB stocks.

Airbnb still faces several other challenges

In the previous columns, I noted that Airbnb faces increasing competition. This is still the case, and I think the streets are starting to take notice of the problem as well.

“Competition is really becoming an issue for Airbnb,” Boris Schlossberg, managing director of currency strategy at BK Asset Management, told CNBC. “” VRBO is really giving Airbnb a run for its money, mainly because Airbnb has a lot more inventory in the urban core and VRBO is much, much better positioned in vacation rental property.[ies], this is where most people want to go.

Meanwhile, I continue to believe that recent increases in crime in the United States could, at some point, deter many consumers from using Airbnb.

Valuation and net result on ABNB shares

ABNB stock trades at a huge ask price of over 24x, while stocks are less attractive than many, if not most, hotel chains.

In view of these points, I advise investors to unload ABNB shares and choose a reopening coin that has greater potential and less risk.

At the time of publication, Larry Ramer had (directly or indirectly) no position on the titles mentioned in this article.

Larry has researched and written articles on US equities for 14 years. He was employed by The Fly and Israel’s largest business newspaper, Globes. Some of his highly successful contrarian picks include solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry started writing articles for InvestorPlace in 2015.

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