Two years into the Covid pandemic, signs are emerging that pent-up travel demand is at the forefront. Travel-related companies could soon be operating on all cylinders, with Airbnb (ABNB) , the leader in global home-sharing, a significant beneficiary.
Airbnb reported solid earnings two weeks ago, surpassing expectations and rallying almost 5%. The stock has since pulled back more than 15%, however, offering investors an opportunity to buy into this fast-growing travel company.
Covid Casualty and Opportunity
Airbnb's business was a casualty of the Covid lockdowns, and canceled travel triggered a revenue drop of 30% in 2020. However, the work-from-anywhere trend, with people untethered from their desks and working remotely, along with a travel rebound, have positioned Airbnb to capitalize and grow in multiple ways.
The fastest growth category is the long-term stays and work relocations, many in small communities and rural towns. Airbnb has introduced platform features that boost long-term stays and rentals. Half the nights booked were for stays over a week. Bookings in urban centers and cross-border travel have only begun to rebound. With these new travel opportunities, revenues last year were up 38% over 2019.
Airbnb is innovating in the right ways to increase the number of hosts and improve the guest experience. Half of the company's revenues are international, where management has focused marketing efforts to build out the host network. A recently added feature called "I'm flexible" has helped Airbnb point travelers to areas with more hosts, better matching supply and demand.
As Airbnb improves services, including insurance coverage for liability and damage of up to $1 million, the company will have the opportunity to increase the take rate from hosts and guests. Currently, management is more focused on aggressively maximizing the opportunity for the platform than increasing fees, yet the optionality exists down the road.
Undoubtedly, Airbnb is not a cheap stock with a market cap of $100 billion, trading at about 60x expected 2023 earnings per share and 10x sales, though fundamentals are improving rapidly. Last quarter, bookings increased 59% over the year-earlier period. EBITDA margins increased from -5% in 2019 to 27% in 2021, and earnings will inflect from losses to profits this year.
Overall, the stock is a bet on the dominant player innovating in a fast-growing industry with a travel tailwind ahead.
Raymond James pointed to four reasons for continued positive fundamentals: "1) a large nights and experiences TAM [Total Addressable Market] that is increasingly shifting to alternative accommodations; 2) a leadership position and strong brand driving significant organic traffic; 3) ~20% long-term revenue growth driven by a shift to alternative accommodations, global expansion, and continued innovation; 4) ~30% plus long-term EBITDA margins."
And there's another market dynamic in play: As Airbnb becomes consistently profitable this year, it will fulfill the last qualification for inclusion in the S&P 500. Currently, ABNB stock is the second largest market cap company not in the index, behind Blackstone (BX) .
The wind is at Airbnb's back as travel returns with a vengeance. After a 15% pullback over the last couple of weeks, the choppy market has given an excellent opportunity to buy into this fast-growing travel stock. The stock should be set to outperform through a strong summer travel season.