Shares of Airbnb (ABNB) fell 11% on Wednesday after the company beat first-quarter earnings estimates but lowered its estimates for the current quarter. Airbnb officials blamed difficult comparisons to last year's second quarter, when demand exploded as the Covid-19 pandemic began to wind down.
However, there are deeper issues at work. The problems faced by Airbnb aren't insurmountable, but they won't disappear overnight. Because of this, I'm not looking at Wednesday's selloff as a buying opportunity.
What are the longer-term issues facing Airbnb?
Some communities are unhappy with the influx of short-term renters into their neighborhoods. To these folks, Airbnb is a disruptive force that is affecting the quality of their lives.
Earlier this week, the city of Plano, Texas, voted to enact a one-year ban on new short-term rentals. At a city council meeting, one resident pleaded, "Please do not turn my town into just a bunch of strangers who come and go, like a hotel. That's not why I moved to Plano."
Plano is not alone. Many communities are unhappy with the effect lodging platform companies as Airbnb and VRBO, which is part of Expedia Group (EXPE) , are having on their neighborhoods.
The city council of Laguna Hills, California, recently banned all short-term rentals, as did the nearby community of Fountain Valley. Superior, Colorado, is among the many towns that are debating limits on short-term rentals.
There are also those who blame Airbnb for contributing to the housing shortage. In their view, if landlords are scooping up housing for the purpose of creating short-term rentals it reduces the number of properties available for purchase as well as the availability of long-term rentals.
Another problem faced by Airbnb is the glut of short-term rentals already on the market in some areas. Existing properties are competing for clients, and that competition is likely to result in lower rental prices. While that may be good news for consumers, it's a negative for Airbnb.
Technically speaking, Wednesday's weak performance didn't cause severe damage to Airbnb's chart. The stock traded briefly below its 200-day moving average (red) before rallying off its lows (arrow).
Source: TradeStation
Even after Wednesday's decline, Airbnb has gained about 33% year to date. However, the stock's heavy volume selloff could be an indication of institutional selling.
Bottom line: Airbnb already has saturated some markets, and some communities are taking action to restrict the service. Factor in the potential for a mild recession later this year and it becomes easy to imagine an extended period of below-trend growth.
