What happened
Shares of Airbnb (ABNB -0.18%) collapsed 46.5% in the first half of 2022, according to data from S&P Global Market Intelligence. The stock is off to an even worse 58% decline from its late 2021 high. It’s been a tough year for high-growth but highly valued stocks like Airbnb. By comparison, the S&P500 was down 21% from its all-time highs, and the Nasdaq Composite was down 31%.
So what
Airbnb’s performance may seem disconcerting, especially as consumer spending has rapidly shifted towards travel and experiences in 2022 as the economy reopens. Additionally, while many of its peers are recovering from the pandemic, Airbnb is in high growth mode.
Data by Y-Charts.
The main reason for the stock’s decline, however, is that it was too expensive after its debut in late 2020 as a listed company. With the US Federal Reserve raising interest rates in an effort to fight inflation, high growth stocks fell. Higher interest rates lower the present value of risky assets like stocks.
Besides the Fed, investors began to worry about a deteriorating outlook for the economy. Reports indicate that the travel boom is starting to slow due to high energy prices and consumers are taking a break from taking that big vacation. The housing market is also in turmoil, which could also overflow and impact the millions of hosts on Airbnb’s site.
Now what
It’s been a rough first half of 2022, the worst first half in over 50 years, but Airbnb’s sharp drop brings the stock back to a much more reasonable (though still premium, in many ways) valuation. Shares are currently trading 21 times over 12 months free movement of capital and 34 times expected earnings for the current year.
Considering the evolution of the consumer travel and remote work trends, Airbnb has a chance to maintain its growth momentum for years to come. More than $9.3 billion in cash and short-term investments offset by just $2.0 billion in debt could certainly help the company keep up the pace. But given current market conditions, Airbnb is expected to remain a highly volatile stock. It could be fantastic long-term value, but only buy if you have at least a few years (but the longer the better) to keep – and plan to do some travel agency is part of a diversified portfolio.
Nicholas Rossolillo has positions in Airbnb, Inc. Its clients may have positions in the stocks mentioned. The Motley Fool holds posts and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.
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