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Airbnb Earnings May Show Its Stock Is A Bargain After 30% Plunge

Published 10/30/2022, 06:59 PM
Updated 07/09/2023, 06:31 PM
  • In this year’s market turmoil, travel stocks have presented an interesting risk-reward proposition
  • Airbnb is an example of a good stock hurt by investors’ en masse exit from high-growth stocks
  • Last year was the company’s best year in its history. Indications are that the platform is on track to finish another solid year

This upcoming week is packed with earnings reports from some of the largest travel or transportation companies in the market. Airbnb Inc (NASDAQ:ABNB) and Uber (NYSE:UBER) report on Tuesday, while Booking Holdings (NASDAQ:BKNG) and Expedia (NASDAQ:EXPE) report later in the week.

In this year’s market turmoil, travel stocks have presented an interesting risk-reward proposition for investors. As demand surges for room bookings and flights after two years of lockdowns and pandemic-related restrictions, the 40-year-high inflation and the risk of a looming recession spoiled the party in one of the most favorite economic re-opening trades.

As a result, some of these technology-driven travel stocks lost their luster as they fell out of favor. The ETFMG Travel Tech ETF (NYSE:AWAY), which tracks an index of companies involved in travel technology, has dropped more than 30% this year despite a booming demand for the services these companies offer.

Travel ETF Chart

Amid this uncertainty about the future outlook, the sector continues to represent some good long-term opportunities. If you’re an investor sitting on the sidelines, looking for a good entry point, I believe this is not a bad time to make the move. Airbnb, the world’s largest booking platform provider, is my favorite pick in this space.

The San Francisco-based Airbnb has consistently shown since its launch in 2007 that it has a robust business model which has been very successful in disrupting the traditional hotel industry. Still, the company’s share price, which is down 33% this year, shows that investors aren’t yet fully convinced.

Airbnb, in my view, is an example of a good company hurt by a weak market amid investors’ en masse exit from high-growth stocks. The San Francisco-based booking platform has developed a business model which is flexible enough to deal with the various economic challenges.

The most significant evidence of this adaptability came during the pandemic when travel demand suddenly plunged, casting doubts over a company’s future that went public during one of the biggest health crises of modern history. But Airbnb not only managed to weather the pandemic, it also thrived.

ABNB Profitability Metrics At All-Time Highs

Source: InvestingPro

The Best Year Ever

The company ended 2021 with what its CEO Brian Chesky called the company’s best year in its history. And indications are that the platform is on track to finish another solid year. It reported record revenue in the second quarter and told investors that the third-quarter period would produce another all-time high sales number. The home-rental company also swung to a profit in the three months ending in June as desperate travelers continued to book accommodations despite rising prices.

Travelers are likely to book nights and experiences in Q3 that will show about a 25% jump from a year earlier, a similar rate to the second quarter. Even if travelers take a breather after a hectic summer activity, it doesn’t mean that Airbnb isn’t worth holding in a long-term portfolio.

AirBnB Revenue

Source: InvestingPro

According to a recent research note by Bernstein, ABNB is on track to become the biggest Western travel platform over the next five years, noting the space could see high single- to low-digit growth going forward. The note adds:

“Airbnb is a unique business within travel, with a triple moat from an aspirational brand, a unique product set and a loyal customer base — all focused in one of travel’s fastest swim lanes.”

It should also be the most profitable online travel agency within two years, beating out competitors such as Expedia and Booking.com, according to the note.

“Even if you have a negative outlook on travel demand, we would see Airbnb as the best stock to own given its more defensive position, faster growth and more attractive valuation on a 4-year forward multiple.”

One reason that kept investors from buying ABNB was the stock’s high valuation compared to its competitors. But that has changed after the recent sell-off. Airbnb now sells at about 10 times its sales for the trailing 12-month period, down from 14 times in early May.

Bottom Line

The current environment of risk-aversion has made investors wary of holding high-growth stocks in their portfolio and Airbnb is certainly a victim of this dominating trend. But the company is positioned strongly to remain a long-term player in the travel industry. The stock's recent weakness offers an attractive buying opportunity.

Disclosure: At the time of writing, the author doesn’t own stocks mentioned in this article. The views expressed in this article are solely the author’s opinion and should not be taken as investment advice.

***

The current market makes it harder than ever to make the right decisions. Think about the challenges:

  • Inflation
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  • Disruptive technologies
  • Interest rate hikes

To handle them, you need good data, effective tools to sort through the data, and insights into what it all means. You need to take emotion out of investing and focus on the fundamentals.

For that, there’s InvestingPro+, with all the professional data and tools you need to make better investing decisions. Learn More »

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