Airbnb (NASDAQ: ABNB) has grow to be so well-liked that the corporate’s title is commonly used as a verb when individuals wish to journey and guide their lodging. Shares have just lately been a disappointment, although, as they’re down 2% 12 months to this point, as of this writing. In the meantime, the key market indexes have soared in 2024.
With this high travel stock buying and selling at $133 per share, almost 40% beneath its all-time excessive, is shopping for Airbnb at this degree a sensible concept?
Moat and earnings
As a two-sided platform with super scale, Airbnb connects tens of millions of hosts and vacationers throughout the globe. The 123 million nights and experiences booked in Q3 function clear proof of the network effects the corporate enjoys, and that is key to the corporate’s financial moat.
This moat is so necessary as a result of it makes success extraordinarily tough for brand new entrants. Somebody launching a brand new competitor to Airbnb must convey hosts and vacationers onto the platform, however with out a big sufficient base of both person group, this can be a tall order.
For current rivals to Airbnb, it is onerous to match the depth of choices. Airbnb at present has 5 million hosts and eight million lively listings in 220 international locations. It is the default selection for a lot of hosts and vacationers, which creates a optimistic suggestions loop.
Airbnb can be constantly worthwhile. Via the primary 9 months of this 12 months, Airbnb reported $2.1 billion in working revenue, good for a 25% margin. And it generated $1.1 billion in free cash flow (FCF) in Q3, capital that administration has used to repurchase excellent shares.
Airbnb’s dangers
Airbnb registered spectacular development through the post-pandemic journey increase. In 2021 and 2022, it posted 77% and 40% income development, respectively. Shopper demand for journey was clearly sturdy.
Nonetheless, these monster features at the moment are a factor of the previous. After recording an 18% gross sales improve final 12 months, Airbnb noticed the highest line broaden by simply 12% by way of the primary 9 months of 2024. The corporate’s efficiency is stabilizing, so traders anticipating the excessive double-digit development of years previous ought to mood their expectations.
As is commonly the case with disruptive and progressive companies that upend whole industries, which is exactly what Airbnb did to the journey sector, there’s at all times uncertainty across the regulatory panorama that traders have to be aware of. On this occasion, Airbnb’s presence in some markets has led some native residents and companies to push for brand new guidelines round short-term leases.
The truth that Airbnb operates in so many markets, coupled with the truth that no single metropolis represents greater than 2% of total income, provides diversification to the enterprise that protects it from draw back. Nonetheless, it might solely take just a few main cities or international locations to undertake legal guidelines that restrict short-term leases to kick off a domino impact.
Shares are buying and selling 39% off their peak from Feb. 2021. Do not let that idiot you, although. The inventory nonetheless sells at a ahead price-to-earnings (P/E) ratio of 33. That is costly given FCF is just projected to extend at a 6% annualized tempo between 2024 and 2026.
Weigh the 2 sides
There are legitimate bull and bear arguments in relation to Airbnb stock. The bulls will name out the corporate’s highly effective community results, in addition to its potential to generate lots of money. Then again, bears will level to slower development, regulatory danger, and an costly valuation.
I facet with the bears, so I am protecting the inventory on my watch record for now, ready for a extra compelling valuation earlier than making a choice.
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Neil Patel and his shoppers don’t have any place in any of the shares talked about. The Motley Idiot has positions in and recommends Airbnb. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
