If one thing’s for certain, it’s that the travel industry will never be the same again. And for Airbnb (NASDAQ:ABNB), this will mean adapting its business model to cater to a new normal. But change isn’t always a bad thing, as it gives companies the opportunity to innovate from the ground up. Looking at the bigger picture, the impact of the pandemic on Airbnb stock was a little different from its effect on your run-of-the-mill hotel properties.
Social distancing rules forced people to stay away from enclosed hotels and opt for long-term rental properties. This was a boon for Airbnb stock, which experienced a strong price rally at its initial public offering (IPO) in December 2020. While we are still years away from full travel recovery, ABNB shows a lot of upside potential for 2021.
Airbnb Stock Thrives on Its Unique Business Model
Airbnb stock certainly gives investors plenty of reasons to love the company. In one of the toughest years for travel in decades, the company managed to keep earnings stable and investors happy. This can be attributed to its business model, which is uniquely designed to remain resilient in an environment of uncertainty. In a sharing economy, the ability to provide an affordable and comfortable alternative to hotel rooms is Airbnb’s winning ticket. This played out well during the pandemic as people tried to avoid enclosed public spaces (like hotels) at all costs.
After a 72% decline in its bookings in April, ABNB was able to pick up the pieces as more people embraced the “work from home” culture. The liberty to work from anywhere they pleased incentivized more people to book long-term rentals on Airbnb.
As a result, reservations on the platform spiked from their March lows. Bookings increased from -4.1 million in March to 19.5 million in September, with a majority of the customers opting to stay at rentals closer to home.
In a post-pandemic world, travel will eventually make a comeback, but we are likely to see a shift in its pattern. In contrast to the large-scale tourism that big cities around the world are known for, travel in a post-pandemic world will be more meaningful. After a year marked by lockdowns and social distancing, the primary reason for travel will involve connecting with family and loved ones.
So while one can question the future of Airbnb stock once the pandemic is behind us, I think it’s uniquely positioned to survive what may come its way.
A Growth Stock Worth Holding On To
Transformation is essential for any company that wants to stay relevant for decades. And this is exactly what Airbnb has done in the face of a pandemic. The company has done to the hotel industry what Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) did to the taxi business: challenge the status quo and change an archaic business model for the better.
While many remain positive about Airbnb’s growth outlook, there are just as many analysts that question its long-term prospects. There is good reason to think this way because hotels are likely to fill up when the pent-up demand for travel is unleashed. This may be true, but it’s also worth noting that Airbnb’s offering isn’t just limited to its rentals. The company is looking to expand to other sectors of the travel industry too.
In partnership with local organizations in different cities, Airbnb offers tours and experiences that customers can add to their rental. In the coming years, the home-sharing network will be competing directly with the likes of industry giants like Booking (NASDAQ:BKNG) and Expedia (NASDAQ:EXPE). That’s a great growth opportunity worth betting on.
The Bottom Line
As an emerging leader in a fast-growing industry, Airbnb stock has all the makings of a high-value growth stock. Despite a hard year for industries across the board, ABNB was able to survive the pandemic better than most. This resiliency coupled with its competitive position in the market is reason enough to remain optimistic about the company’s future.
Moreover, the pent-up demand for travel once the pandemic is over could push this stock even higher. Investors looking for a good travel and tourism play should get their hands on this investment.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.
