Following years of pandemic-related restrictions, the unleashing of pent-up travel demand has been a windfall for hospitality stocks like Airbnb (ABNB). The surge in so-called “revenge travel” pushed more users to ABNB's platform, and led to a significant recovery in its share price. Thanks to a more favorable operating environment, ABNB stock has risen over 79% year-to-date in 2023, easily outperforming the S&P 500 Index ($SPX).
While travel demand remains strong, let’s take a closer look and see if Airbnb stock can keep climbing.
An Overview of Airbnb
Airbnb is a community-based rental platform offering short- and long-term stays. The company boasts a network of over 4 million hosts (people who provide rental space), and Airbnb earns revenue through service fees, net of incentives and refunds, for stays. It also makes money via host fees for experiences.
Thanks to the travel recovery, Nights and Experiences booked on its platform (a key measure of scale) increased by 31% to $393.8 million in 2022. Impressively, Gross Booking Value, or GBV (the dollar value of bookings on its platform), was $63.2 billion in 2022, up 35% year-over-year.
Airbnb delivered revenues of about $8.4 billion in 2022, while it reported a profit of $1.89 billion, compared to a loss of $352 million in 2021.
Momentum Carries Over into 2023
The positive momentum in ABNB’s business has continued in 2023, with Nights and Experiences booked increasing by 19% to 121.1 million in the first quarter of 2023. Meanwhile, GBV was $20.4 billion in Q1, representing an increase of 19%.
Airbnb’s top line increased by 20% to $1.82 billion in the first quarter, while it delivered net income of $117 million, compared to the loss of $19 million in the prior year.
Given the improvement in its financials and a strong balance sheet, Airbnb announced its first-ever stock buyback program, worth $2 billion, in August 2022. Earlier this year, the company’s board approved an expanded repurchase plan of $2.5 billion.
Factors Supporting Airbnb Stock
Despite macro headwinds, the company reported an increase in the number of active bookers in Q1. Plus, more guests booked trips further in advance, building a stronger backlog. ABNB’s backlog of nights was about 25% higher at the end of Q1 compared to the prior-year period.
With favorable travel trends, its unique alternative accommodation offerings, and a broad range of listings, ABNB is poised to attract new travelers and drive nights booked on its platform. ABNB's reduced headcounts and improving operating costs also bode well for future results.
Furthermore, ABNB’s strong balance sheet and growing cash flows enable it to invest in new growth initiatives and continue to return cash to its shareholders. Recently, the company launched over 50 new features and upgrades, including pricing tools, faster customer service, and transparent checkout instructions. Moreover, ABNB is investing in new products and services that it plans to launch in 2024 and beyond.
In addition, the company is focusing on less mature markets, which is expected to accelerate its growth rate. Besides organic growth opportunities, the company’s solid balance sheet positions it well to acquire businesses that could further support its growth.
Positives Appear Priced into ABNB
ABNB may be likely to benefit from positive travel trends and its own growth initiatives. However, the recent run higher in its share price indicates that quite a few of these positives are already reflected in its stock.
With a price-to-earnings ratio of 49.34 and an expected EPS growth rate of 24% and 16% in 2023 and 2024, ABNB stock arguably looks overvalued near current levels.
However, as far as analysts are concerned, ABNB’s risk-reward appears to be reasonably balanced near the current levels. Out of the 28 analysts covering ABNB stock, 11 have a “Strong Buy” recommendation, 2 analysts recommend a “Moderate Buy,” 12 analysts maintain a “Hold,” and three have a “Strong Sell” recommendation.
That said, the average price target for ABNB is $133.56, more than 12% below its Friday close at $153.33.
The Final Takeaway
Airbnb’s fundamentals may remain strong and support its long-term growth outlook. However, I believe investors looking to establish new positions should wait for a pullback. While the stock has multiple growth catalysts, its current valuation is rich.
Further, ABNB’s growth rate is expected to moderate going forward as it faces tougher year-over-year comparisons. Additionally, average daily rates will likely moderate due to the mix shifts and the introduction of new host pricing tools.
Looking ahead, the company is scheduled to report earnings on August 3rd. This may provide an opportunity for investors to buy shares at more attractive prices, as in three out of the last four quarters, ABNB shares have dropped in the session immediately after reporting earnings.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
