Airbnb should be a sleeper hit
Airbnb (ABNB) is most definitely not in season right now. That may prove a good time for investors to check back in.
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The home-sharing pioneer has shed a quarter of its market value over the past six months. That is among the worst performances of large-cap internet stocks for that period. The trend doesn’t look that much better further out; Airbnb shares are down 10% over the past 12 months—making it the only stock on the S&P 500 Hotels, Resorts and Cruise Lines sub group to be in the red for that period.
What gives? Airbnb has long occupied a unique position at the intersection of travel, online commerce and the gig economy. The company popularized the idea of people renting out extra rooms or homes to strangers, and the idea has had plenty of takers. By the end of last year, more than five million hosts had signed on to the Airbnb platform. Cumulative guest arrivals through the service have totaled more than 1.5 billion.
But that sort of scale also leaves Airbnb exposed to the same economic trends affecting more established players in travel, lodging and entertainment. Following a strong period of elevated post-Covid travel spending, consumers in the U.S. and elsewhere are tightening their belts.
“Coming out of Covid, they’ve spent all that money, they’re now borrowing more,” Hilton Chief Executive Chris Nassetta said on an earnings call earlier this month, explaining his company’s lowered revenue outlook for the year. In his own call the night before, Airbnb CEO Brian Chesky called out “shorter booking lead times globally and some signs of slowing demand from U.S. guests.”
Not a great moment for the lodging business, in other words. But Airbnb still has better prospects than most. Wall Street expects the company’s gross bookings to grow nearly 11% this year compared with the 4%-to-6% range seen for rival online travel marketplaces Expedia and Bookings.com. Analysts also expect Airbnb’s revenue growth to stay in the double-digit range for at least the next four years. Marriott and Hilton are projected to average 5% to 8% annual revenue growth in that same time, according to consensus estimates from FactSet.
But none of those stocks have been punished the way Airbnb’s has. Part of the problem is Airbnb’s relative newness, which has limited its operating history to periods of extreme swings in the travel market. The company went public in late 2020—a year in which the pandemic virtually wiped out global travel. Gross bookings then averaged an insane 82% growth each quarter on a year-over-year basis over the next two years, due to easy comparisons and booming pent-up travel demand.
That lack of long-term operating history leaves investors relying on short-term data as the primary guide. “People are less aware of how this company can keep growing,” Bernstein Research analyst Richard Clarke said in an interview. “The market just takes whatever the last growth number is—Q3 guidance in this case—and extrapolates that forward.”
Only about one-quarter of the analysts covering Airbnb rate the stock as a “buy.” Clarke is one of them, noting in his report following the company’s latest earnings release that Airbnb “is the volume beneficiary of lodging demand outpacing hotel supply.”
And even Airbnb’s current scale leaves a lot of room for growth. In the latest earnings call, Chesky said about nine people book a hotel room for every one person who books an Airbnb. “And so if we can get just one of those guests to book on Airbnb that’s currently booking at a hotel platform, we would go from nearly 0.5 billion nights a year to 1 billion nights a year,” he said.
Airbnb is also on the cusp of adding new services and offerings to its mix. Chesky teased a so-called winter release coming in October, which he said will be “setting the stage for host provided services” and other new developments. New services such as a host marketplace, new travel-related services for guests and sponsored listings have the potential to eventually diversify Airbnb from basically being a one-product company.
That will take time, of course. Kevin Kopelman of TD Cowen estimates that new services will contribute 2 percentage points to Airbnb’s revenue growth next year. But Airbnb is now trading at near a record low of 17 times projected free cash flow—a discount of more than 20% to gig-economy stalwarts Uber and DoorDash. It also currently ranks among Bernstein’s least crowded decile of internet and media stocks right alongside Etsy, whose gross merchandise sales have fallen every quarter for the past two years. Checking in with Airbnb now shouldn’t lose investors too much sleep.
Write to Dan Gallagher at [email protected]