Over the years, I’ve stressed to my readers to not get distracted by negative headlines and instead focus on the bigger picture. What’s more, innovations don’t happen in a vacuum and they often form the basis of further advancements. At first glance, Airbnb (NASDAQ:ABNB) seems like a great example for what I’ve termed the “Roaring 2020s.” However, Airbnb stock actually proves that looks can be deceiving.
Admittedly, ABNB is off to a great start, having gained some 18% since the beginning of the month. Further, the underlying company technically represents the burgeoning “on-demand” economy. Through a digital network, individual homeowners can make profitable use of their rental property or even a spare bedroom. This recurring motif of extracting utility out of static assets has helped earn the stock and other tech investments to incredible premiums.
But, while I’ve pounded the table on several disruptive plays, I don’t see the same potential for ABNB. That’s because the company faces being disrupted, too, suffering the fate it set out to impose on other businesses.
Primarily, Airbnb is grossly overvalued. I stated earlier this year:
“[T]he valuation and industry trends remain as concerns. Put simply, an $87 billion valuation — and at its highs, a $96.6 billion market capitalization — is a lofty sum for a company that’s forecast to do just $3.3 billion in sales this year.
“Granted, this is a difficult year for Airbnb, so perhaps next year’s estimate of $4.46 billion is better suited. Still, that leaves shares trading at 19.5 times next year’s revenue expectations.”
So, I’m looking for great deals, not ones that are priced beyond perfection.
In addition, Airbnb stock will feel significant pressure from rivals — both from traditional hotels and lodgings as well as direct competitors entering the arena without ABNB’s reputational damage.
The New Normal Could Book Volatility for Airbnb Stock
Late last week, Airbnb announced that it would not accept new bookings and cancel existing ones in the Washington, D.C. area for the week of the inauguration. Obviously — with social and political tensions at all-time highs — that move seems to reflect well on the company from a PR perspective.
However, perceptions don’t always pay the bills. Following the disclosure, ABNB tumbled about 5%. Evidently, losing a revenue stream was not what shareholders wanted to see. And while the company may have made the right move in cancelling reservations, others may view it as too little, too late.
Moreover, while Airbnb stock has had enormous hype since day one, this success has also attracted plenty of controversy. As Fortune pointed out, the company has been dogged by accusations of shady business dealings and serious security concerns. Prior to the pandemic, some of the service’s biggest complaints were about cleanliness and safety, too. Any other time, ABNB could probably overcome these challenges. But in the new normal — when things like cleanliness are top of mind — it’s a different story.
Even government bodies are trying to funnel tourists into traditional lodgings rather than Airbnb properties. That way health officials can better facilitate contact-tracing if any infection hot spots arise.
Essentially, multiple aspects of the pandemic are working against this company.
Better to Wait
I don’t believe that the novel coronavirus is the end-all be-all to market sentiment. Eventually, we will get over this. In fact, the recent vaccination distributions represent an important component to our battle against this disease.
However, it would be naïve to assume there wouldn’t be some impact to consumer behaviors. Furthermore, it may take many years for the broader travel industry to recover as consumers gradually gain confidence. It’s not an overnight affair. That’s why I’ve stated before that, with the recovery play on airliners, you’re looking at an approximately three-year time window.
But the difference here is that many airliners are trading as if a years’ long recovery is the standard. With Airbnb stock, it maintains a premium that goes against good judgment and common sense.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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