Airbnb (NASDAQ:ABNB) has created a new industry, and some good-paying jobs. It’s not perfect. But there’s huge potential here to remake the lodging industry, and there’s huge potential for Airbnb stock.
I’m just not paying 20x revenue for it. The stock trades for about $160 with a market cap of $96 billion, on 2019 revenue of $4.8 billion. I report 2019 here because 2020 will come up short of that mark, and we want to be fair.
By comparison, Booking Holdings (NASDAQ:BKNG) has a market cap of $91 billion on 2019 revenue of $15 billion. Nearly one third of that revenue was net income last year.
Surviving the Pandemic
We stayed at an Airbnb over the holidays.
We were seeing one other person. The “close-in apartment” was an upgraded graduate dorm. But we had a kitchen, cable TV, location, it was nice. Five stars to the host as well.
Airbnb stock is prized because the company survived the pandemic thanks to people like me. People who are traveling less, but engaging in longer stays, want something beyond a hotel room.
Airbnb came public on Dec. 10. The $68 IPO price looked rich. By the end of the day, it was at $144. So far it has managed to hold that level. I thought the initial price looked high. It’s now more than twice that.
If you’re a speculator looking for fast gains, I was wrong about ABNB. But I’ve said this before. I don’t write for speculators. I’m interested in where a company might be three to five years from now. That’s how you beat the machines, by letting time work for you.
Our David Moadel calls Airbnb’s business model resilient, and notes there is enormous pent-up travel demand. He’s right. But after we return to normal, and after the initial rush to go somewhere has worn off, can Airbnb keep growing?
Stress on the Model
Like many e-commerce companies that have risen to “disrupt” with new business models, Airbnb takes as it gives away.
Mostly, Airbnb takes prime real estate off the market. Speculators can make more with Airbnb apartments that are occupied just during tourist season, than with regular rentals. Cities, states, and countries are going to be regulating this.
Then there are companies like Booking, and its rival Expedia (NASDAQ:EXPE). They’re getting into this business, too. It’s not especially hard.
Airbnb says it can win with “experiences,” getting local people to act as tour guides or teachers in cooking and local music. The idea is that this will boost entrepreneurship.
But it’s more likely this will create new scaled businesses, with agents taking most of the money, and guides becoming like Uber (NASDAQ:UBER) drivers. That’s what has happened to local restaurants with ghost kitchens. There’s also the problem of people putting properties on the site, then renting them privately outside it.
The Bottom Line
There are opportunities here to link capital with technology and grow Airbnb.
There’s an old phone switching center around the corner from me that’s being turned into tiny apartments right now. I guarantee some will wind up on Airbnb. The monthly rental business, too, needs to be organized. Airbnb can do it.
The question for investors is how much will that be worth in 2024, especially as larger companies jump in? Will the portion of that money going to the platform be worth $15 billion, with nearly one-third of it hitting the net income line, as is true for Booking?
Right now, most analysts don’t know. They see Airbnb stock continuing to lose money next year, on about $4.5 billion in revenue.
Based on that, I think Booking is a better buy.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
