Airbnb (NASDAQ:ABNB) has been of the hottest IPO’s in the travel and hospitality industry in recent memory. Surprisingly, it comes at a time when the industry is at its lowest ebb in years. Despite the pandemic-stricken business environment, Airbnb stock continues to do relatively well in the eyes of investors.
The company has a wider moat than its competitors with its unique home-sharing model, loyal customer base and differentiated design. However, the stock’s value is significantly higher across virtually every price-metric, which should compel investors in waiting for a pull-back.
Airbnb stock was initially priced at $68 but later popped to $146 per share on its first trading day. It is currently trading around at similar levels, and its market capitalization exceeded the $100 billion mark. That puts the company past the market cap of some of the major bigwigs in its industry, including its competitors in Bookings (NASDAQ:BKNG) and Expedia (NASDAQ:EXPE). Analysts believe that its valuation is more than stretched at this point and is approximately two-times estimated bookings in 2022. Therefore, it’s best to wait for a significant stock correction before investing in the company.
Unique Business Model
Airbnb’s business model doesn’t require much of an introduction considering its widespread adoption in recent years. It is essentially a marketplace, which connects sellers (hosts) offering lodging and other unique services to buyers (guests). It offers a differentiated service to hotels, empowering homeowners to become entrepreneurs by providing hospitality services.
The hosts and guests get several benefits in using the platform through its unique built-in services, including payments, support, pricing, protection and others. It offers a different way to travel for guests, usually at a lower price than hotels. Its listings have amassed several customer reviews, which provided the much-needed transparency for travelers to make informed decisions.
Airbnb should bounce back quickly from the pandemic due to its business model. It is natural for people to shy from staying in large-scale facilities and for hosts to generate additional income during these testing economic times. Moreover, the company should also benefit from the remote-work trend with employees traveling the world and using the platform to select the safest accommodation at low prices.
The going has been tough for Airbnb, especially in the first nine months of the past year. Sales dropped 31.9% year-over-year, and net loss shot up 183%. However, with its third-quarter earnings beat, it appears that things have started to recover for the company. Revenue dropped 18%, albeit at a slower rate in comparison to the previous quarters. Net profit was at an impressive $219 million, which was boosted by its belt-tightening measures.
Gross nights improved during the quarter, recovering 49% sequentially from the second quarter on a year-over-year basis. Moreover, the value of gross bookings also improved from a reduction of 119% to just a 17% drop in the same timeframe. Short-distance travel and long-term stays are two sub-categories that have robust recoveries.
Airbnb has also done well to control its cash burn as much as possible. It laid off 25% of its workers in May, suspended marketing activities, and sought $2 billion worth of funding from its investors. The company has an impressive cash balance of $4.5 billion with total debt at just $2.28 billion.
Led by enterprising CEO Brian Chesky, Airbnb continues to push industry boundaries and offer unique solutions to outwit its competitors. Online experiences are a new field for the company, which could pay dividends down the road. It also has a lot of potential in expanding into other real-estate-based areas
Final Word on Airbnb Stock
Airbnb stock went public in a sea of business gloom stirred by the global pandemic. The company has had an understandably tough year but is starting to pick up the pace again. Its unique value proposition enables it to emerge from the crisis more quickly than its competitors.
However, the problem is Airbnb’s unjust valuation, which has investors scratching their heads about whether to invest in it at this time. I would suggest waiting for a dip in Airbnb stock before thinking about investing in it.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.