Is Airbnb The Best Travel Stock As Delta Variant Surges?

Penni Schewe

Airbnb published a better than expected set of Q2 2021 earnings last week, although the strong results were overshadowed by concerns that surging Covid-19 cases in the U.S. could impact the company’s near-term performance.

Over Q2, Airbnb saw its revenue rise by almost 4x compared to last year to $1.34 billion, with its net loss narrowing considerably to about $68 million for the quarter. The underlying trends for the business were also strong, with average daily rates for bookings rising to $161, up from $160 in Q1, and up by over 40% year-over-year. However, the company struck a cautious tone with its near-term outlook. The highly infectious delta variant of the virus that causes Covid-19 has been spreading in the U.S. and daily cases in the country have surged to levels of around 130,000 cases per day presently, a fourfold increase compared to last month. Although Airbnb expects Q3 revenues to be its strongest ever, it has indicated that the number of bookings for the quarter would be below that of Q2 2021, due to seasonality and concerns over the current Covid-19 surge. The company also said that its Q4 performance would depend on the progress of vaccinations and the containment of new virus variants.

While the current virus surge is concerning, we think that Airbnb is better positioned compared to hotels and other segments of the travel industry to tackle an extended pandemic. More people are likely to opt for driving holidays, possibly to less populated areas, while planning longer stays as companies have delayed return to office plans. For example, over Q2, the company said that 19% of stays booked on its platform were for 28 days or more, with the number standing at 24% in Q1. Airbnb’s inventory is also likely to be more suited to social distancing, compared to hotels that have many common areas and this could also play to the company’s favor.

We value Airbnb stock at about $160 per share, about 18x projected 2021 revenues. This is about 8% ahead of the current market price. Although there are cheaper ways to play the vacation rental business, via the likes of Expedia which also owns Vrbo, a fast-growing vacation rental business, we think Airbnb’s brand and strong growth should make it a top pick in the space. See our interactive analysis on Airbnb’s Valuation: Expensive Or Cheap? for more details on Airbnb’s business and comparison with peers.

[7/1/2021] Buy Airbnb Stock Ahead Of The July Fourth Travel Boom?

Airbnb stock (NASDAQ: ABNB) has gained about 14% from its lows of near $134 per share seen in May, to about $153 per share currently, as investors brace for a big upcycle in the hotel industry.

The upcoming Independence Day weekend is viewed as an inflection point of sorts in the U.S. travel and tourism industry’s recovery from the Covid-19 pandemic. About 46% of Americans are now fully vaccinated against Covid, and mask mandates have also been lifted in multiple tourist destinations, and this could result in significant pent-up demand for travel. For perspective, the American Automobile Association expects that over 47.7 million Americans will be traveling between July 1 and July 5, with travel recovering almost fully to the pre-pandemic levels. It’s very likely that demand will remain elevated through the Labor Day weekend in early September as people make the most of the first summer post the Covid lockdowns.

Now, Airbnb is very well positioned to take advantage of the coming boom, as we believe that more people will opt for driving holidays, possibly to less populated areas, while potentially planning longer stays – a trend that should benefit vacation-sharing companies. The company has also prepared for this surge, carrying out some major upgrades to its platform in May.

That being said, we think Airbnb stock looks a bit expensive at current prices of over $150 per share, trading at over 17x forward revenues. There are cheaper ways to play the travel boom. For example, online travel major Expedia which also owns Vrbo, a fast-growing vacation rental business, is valued at about $25 billion, or under 3x projected 2021 revenue. Expedia’s revenue growth rates are also expected to be comparable to Airbnb’s (about 60% this year) and it is actually likely to turn a profit, unlike Airbnb which remains in the red. We value Airbnb at about $120 per share, or about 15x projected 2021 revenue. See our interactive analysis on Airbnb’s Valuation: Expensive Or Cheap? for more details on Airbnb’s business and comparison with peers.

[5/27/2021] What’s Happening With Airbnb Stock?

Airbnb stock (NASDAQ: ABNB) has declined by about 25% over the last month, trading at about $135 per share currently. Below are a few recent developments for the company and what it means for the stock.

Airbnb posted a strong set of Q1 2021 results earlier this month, with revenues increasing by about 5% year-over-year to $887 million, as growing vaccination rates, particularly in the U.S., led to more travel. Nights and experiences booked on the platform were up 13% versus the last year, while the gross booking value per night rose to about $160, up around 30%. The company is also cutting its losses. Adjusted EBITDA improved to negative $59 million, compared to negative $334 million in Q1 2020, driven by better cost management and the company expects to break even on an EBITDA basis over Q2. Things should improve further through the summer and the rest of the year, driven by pent-up demand for vacations and also due to increasing workplace flexibility, which should make people opt for longer stays. Airbnb, in particular, stands to benefit from an increase in urban travel and cross-border travel, two segments where it has traditionally been very strong.

Earlier this week, Airbnb unveiled some major upgrades to its platform as it prepares for what it calls “the biggest travel rebound in a century.” Core improvements include greater flexibility in searching for booking dates and destinations and a simpler onboarding process, which makes it easier to become a host. These developments should allow the company to better capitalize on recovering demand.

Although we think Airbnb stock is slightly overvalued at current prices of $135 per share, the risk to reward profile for Airbnb has certainly improved, with the stock now down by almost 40% from its all-time highs seen in February. We value the company at about $120 per share, or about 15x projected 2021 revenue. See our interactive analysis on Airbnb’s Valuation: Expensive Or Cheap? for more details on Airbnb’s business and comparison with peers.

[5/10/2021] Is Airbnb Stock A Buy At $150?

We noted that Airbnb stock (NASDAQ: ABNB) was expensive during our last update in early April when it traded at close to $190 per share (see below). The stock has corrected by roughly 20% since then and remains down by about 30% from its all-time highs, trading at about $150 per share currently. So is Airbnb stock attractive at current levels? Although we still believe valuations are rich, the risk to reward profile for Airbnb stock has certainly improved. The stock trades at about 20x consensus 2021 revenues, down from around 24x during our last update. The growth outlook also remains strong, with revenue projected to grow by over 40% this year and by around 35% next year.

Now, the worst of the Covid-19 pandemic appears to be behind the United States, with over a third of the population now fully vaccinated and there is likely to be considerable pent-up demand for travel. While sectors such as airlines and hotels should benefit to an extent, it’s unlikely that they will see demand recover to pre-Covid levels anytime soon, as they are quite dependent on business travel which could remain subdued as the remote working trend persists. Airbnb, on the other hand, should see demand surge as recreational travel picks up, with people opting for driving holidays to less densely populated locations, planning longer stays. This should make Airbnb stock a top pick for investors looking to play the initial reopening.

To be sure, much of the near-term movement in the stock is likely to be influenced by the company’s first quarter earnings, which are due on Thursday. While the company’s gross bookings declined 31% year-over-year during the December quarter due to Covid-19 resurgence and related lockdowns, the year-over-year decline is likely to moderate in Q1. The consensus points to a year-over-year revenue decline of about 15% for Q1. Now if the company is able to deliver a solid revenue beat and a stronger outlook, it’s quite likely that the stock will rally from current levels.

See our interactive dashboard analysis on Airbnb’s Valuation: Expensive Or Cheap? for more details on Airbnb’s business and our price estimate for the company.

[4/6/2021] Why Airbnb Stock Isn’t The Best Travel Recovery Play

Airbnb (NASDAQ: ABNB) stock is down by close to 15% from its all-time highs, trading at about $188 per share, due to the broader sell-off in high-growth technology stocks. However, the outlook for Airbnb’s business is actually very strong. It seems reasonably clear that the worst of the pandemic is now behind us and there is likely to be considerable pent-up demand for travel. Covid-19 vaccination rates in the U.S. have been trending higher, with around 30% of the population having received at least one shot, per the Bloomberg vaccine tracker. Covid-19 cases are also well off their highs. Now, Airbnb could have an edge over hotels, as people opt for less densely populated locations while planning longer-term stays. Airbnb’s revenues are likely to grow by about 40% this year, per consensus estimates. In comparison, Airbnb’s revenue was down only 30% in 2020.

While we think that the long-term outlook for Airbnb is compelling, given the company’s strong growth rates and the fact that its brand is synonymous with vacation rentals, the stock is expensive in our view. Even post the recent correction, the company is valued at over $113 billion, or about 24x consensus 2021 revenues. Airbnb’s sales are likely to grow by about 40% this year and by about 35% next year, per consensus estimates. There are much cheaper ways to play the recovery in the travel industry post-Covid. For example, online travel major Expedia which also owns Vrbo, a fast-growing vacation rental business, is valued at about $25 billion, or just about 3.3x projected 2021 revenue. Expedia growth is actually likely to be stronger than Airbnb’s, with revenue poised to expand by 45% in 2021 and by another 40% in 2022 per consensus estimates.

See our interactive dashboard analysis on Airbnb’s Valuation: Expensive Or Cheap? We break down the company’s revenues and current valuation and compare it with other players in the hotels and online travel space.

[2/12/2021] Is Airbnb’s Rally Justified?

Airbnb (NASDAQ: ABNB) stock has rallied by almost 55% since the beginning of 2021 and currently trades at levels of about $216 per share. The stock is up a solid 3x since its IPO in early December 2020. Although there hasn’t been news from the company to warrant gains of this magnitude, there are a couple of other trends that likely helped to push the stock higher. Firstly, sell-side coverage increased considerably in January, as the quiet period for analysts at banks that underwrote Airbnb’s IPO ended. Over 25 analysts now cover the stock, up from just a couple in December. Although analyst opinion has been mixed, it nevertheless has likely helped increase visibility and drive volumes for Airbnb. Secondly, the Covid-19 vaccine rollout is gathering momentum in the U.S., with upwards of 1.5 million doses being administered per day, and Covid-19 cases in the U.S. are also on the downtrend. This should help the travel industry eventually get back to normal, with companies such as Airbnb seeing significant pent-up demand.

That being said, we don’t think Airbnb’s current valuation is justified. (Related: Airbnb’s Valuation: Expensive Or Cheap?) The company is valued at about $130 billion, or about 31x consensus 2021 revenues. Airbnb’s sales are likely to grow by about 37% this year. In comparison, online travel giant Expedia which also owns Vrbo, a growing vacation rental business, is valued at about $20 billion, or just about 3x projected 2021 revenue. Expedia is likely to grow revenue by over 50% in 2021 and by around 35% in 2022, as its business recovers from the Covid-19 slump.

[12/29/2020] Pick Airbnb Over DoorDash

Earlier this month, online vacation platform Airbnb (NASDAQ: ABNB) – and food delivery startup DoorDash (NYSE: DASH) went public with their stocks seeing big jumps from their IPO prices. Airbnb is currently valued at a whopping $90 billion, while DoorDash is valued at about $50 billion. So how do the two companies compare and which is likely the better pick for investors? Let’s take a look at the recent performance, valuation, and outlook for the two companies in more detail. Airbnb vs. DoorDash: Which Stock Should You Pick?

Covid-19 Helps DoorDash’s Numbers, Hurts Airbnb

Both Airbnb and DoorDash are essentially technology platforms that connect buyers and sellers of vacation rentals and food, respectively. Looking purely at the fundamentals in recent years, DoorDash looks like the more promising bet. While Airbnb trades at about 20x projected 2021 Revenue, DoorDash trades at just about 12.5x. DoorDash’s growth has also been stronger, with Revenue growth averaging about 200% per year between 2018 and 2020 as demand for takeout soared through the Covid-19 pandemic. Airbnb grew Revenue at an average rate of about 40% prior to the pandemic, with Revenue likely to drop this year and recover to close to 2019 levels in 2021. DoorDash is also likely to post positive Operating Margins this year (about 8%), as costs grow more slowly compared to its surging Revenues. While Airbnb’s Operating Margins stood at around break-even levels over the last two years, they will turn negative this year.

The Airbnb Story Still Has Appeal

However, we think the Airbnb story has more appeal compared to DoorDash, for a couple of reasons. Firstly in the near-term, Airbnb stands to gain considerably from the end of Covid-19 with highly effective vaccines already being rolled out. Vacation rentals should rebound nicely, and the company’s margins should also benefit from the recent cost reductions that it made through the pandemic. DoorDash, on the other hand, is likely to see growth moderate considerably, as people start returning to dine in restaurants.

There are a couple of long-term factors as well. Airbnb’s platform scales much more easily into new markets, with the company’s operating in about 220 countries compared to DoorDash, which is a logistics-based business that has thus far been restricted to the U.S alone. While DoorDash has grown to become the largest food delivery player in the U.S., with about 50% share, the competition is intense and players compete primarily on cost. While the barriers to entry to the vacation rental space are also low, Airbnb has significant brand recognition, with the company’s name becoming synonymous with rental holiday homes. Moreover, most hosts also have their listings unique to Airbnb. While rivals such as Expedia are looking to make inroads into the market, they have much lower visibility compared to Airbnb.

Overall, while DoorDash’s financial metrics currently appear stronger, with its valuation also appearing slightly more attractive, things could change post-Covid. Considering this, we believe that Airbnb might be the better bet for long-term investors.

[12/16/2020] Making Sense Of Airbnb Stock’s $75 Billion Valuation

Airbnb (NASDAQ: ABNB), the online vacation rental marketplace, went public last week, with its stock almost doubling from its IPO price of $68 to about $125 currently. This puts the company’s valuation at about $75 billion as of Tuesday. That’s more than Marriott – the largest hotel chain – and Hilton hotels combined. Does Airbnb – which has yet to turn a profit – justify such a valuation? In this analysis, we take a brief look at Airbnb’s business model, and how its Revenues and growth are trending. See our interactive dashboard analysis for more details. In our interactive dashboard analysis on on Airbnb’s Valuation: Expensive Or Cheap? we break down the company’s revenues and current valuation and compare it with other players in the hotels and online travel space. Parts of the analysis are summarized below.

How Have Airbnb’s Revenues Trended In Recent Years?

Airbnb’s business model is simple. The company’s platform connects people who want to rent out their homes or spare rooms with people who are looking for accommodations and makes money primarily by charging the guest as well as the host involved in the booking a separate service fee. The number of Nights and Experiences Booked on Airbnb’s platform has risen from 186 million in 2017 to 327 million in 2019, with Gross Bookings soaring from around $21 billion in 2017 to about $38 billion in 2019. The portion of Gross Bookings that Airbnb recognizes as Revenue rose from $2.6 billion in 2017 to around $4.8 billion in 2019. However, the number is likely to fall sharply in 2020 as Covid-19 has hurt the vacation rental market, with total Revenue likely to fall by about 30% year-over-year. Yet, with vaccines being rolled out in developed markets, things are likely to start returning to normal from 2021. Airbnb’s large inventory and affordable prices should ensure that demand rebounds sharply. We project that Revenues could stand at about $4.5 billion in 2021.

Making Sense Of Airbnb’s $80 Billion Valuation

Airbnb was valued at about $75 billion as of Tuesday’s close, translating into a P/S multiple of about 16.5x our projected 2021 Revenues for the company. For perspective, Booking Holdings – among the most profitable online travel agents – traded at about 6x Revenue in 2019, while Expedia traded at 1.3x and Marriott – the largest hotel chain – was valued at about 2.4x sales prior to the pandemic. Moreover, Airbnb remains deeply loss-making, with Operating Margins standing at -16% in 2019, versus 35% for Booking and 7.5% for Expedia. However, the Airbnb story still has appeal.

Firstly, growth has been and is likely to remain, strong. Airbnb’s Revenue has grown at over 40% each year over the last 3 years, compared to levels of about 12% for Expedia and Booking Holdings. Although Covid-19 has hit the company hard this year, Airbnb should continue to grow at high double-digit growth rates in the coming years as well. The company estimates its total addressable market at about $3.4 trillion, including $1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for experiences.

Secondly, Airbnb’s asset-light model should also help its profitability in the long run. While the company’s variable costs stood at about 25% of Revenue in 2019 (for a 75% gross margin) fixed operating costs such as Sales and marketing (about 34% of Revenues) and product development (20% of Revenue) currently remain high. As Revenues continue to grow post-Covid, fixed cost absorption should improve, helping profitability. Moreover, the company has also trimmed its cost base through Covid-19, as it laid off about a quarter of its staff and shed non-core operations and it’s possible that combined with the possibility of a strong Recovery in 2021, profits should look up.

That said, a 16.5x forward Revenue multiple is high for a company in the online travel business. And there are risks including potential regulatory hurdles in large markets and adverse events in properties booked via its platform. Competition is also mounting. While Airbnb’s brand is strong and generally synonymous with short-term residential rentals, the barriers to entry in the space aren’t too high, with the likes of and Agoda launching their own vacation rental platforms. Considering its high valuation and risks, we think Airbnb will need to execute very well to simply justify its current valuation, let alone drive further returns.

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