Along with most other high-growth companies, Airbnb (NASDAQ:ABNB) stock has come under pressure during the past few weeks.
Yet the decline has not been steep. ABNB stock has fallen about 10% from its high of 216.84, closing yesterday at $194. But the shares are still up about 185% since the company’s high-profile IPO in December. The company’s market capitalization is about $118 billion.
Among the many unicorns that have come public over the past few years, Airbnb is certainly a standout name. And despite the company’s high valuation, the stock’s prospects continue to look promising.
For the following three reasons, the outlook of ABNB stock remains strong.
Airbnb’s Strong Management Team
Since the founding of Airbnb in 2008, its management team has proven to be quite effective. The company has been able to fend off a variety of competitors because of its focus on making its site easy to use and highly engaging.
But with the emergence of the Covid-19 pandemic, Airbnb’s management team was tested in a big way. The company swiftly cut its costs, laying off 25% of its global workforce and suspending various initiatives. To shore up its finances, the company raised $2 billion through debt.
Yet perhaps Airbnb’s most important move was its decision to focus on short domestic bookings. That step helped to reduce the impact of the pandemic. For example, in the fourth quarter, the company’s revenue only fell about 22% year-over-year, even though another major surge of the virus resulted in many lockdowns.
In fiscal 2020, there were 193.2 million nights and experiences booked and the company reported gross billings of $23.9 billion.
The Powerful Business Model
Online marketplaces often have a “winner-take-all” advantage. That is because of network effects, which is a process in which a service becomes more valuable as it is used by more people. That is why platforms like eBay (NASDAQ:EBAY) and Alibaba (NYSE:BABA) have remained so strong for many years.
Airbnb is dominant in the vacation-home rental category. It has 5.6 million active listings across over 220 countries and regions.
Airbnb’s strong brand has enabled it to become the top-of-mind site for the industry. Because of that, over 90% of the company’s traffic comes from sources that do not cost it anything.
Meanwhile, the company’s market opportunity is massive. According to Airbnb’s S-1, its total addressable market is a whopping $3.4 trillion. That includes:
- $1.8 trillion for short-term stays
- $210 billion for long-term stays
- $1.4 trillion for experiences.
In other words, Airbnb has a great deal of room to grow.
The Reopening and ABNB Stock
As a result of the rollout of the vaccines made by Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) and Johnson & Johnson (NYSE:JNJ), it looks like the U.S. economy is poised for growth again. Indeed, the Federal Reserve recently upgraded its forecast for 2021 U.S. GDP (Gross Domestic Product) from 4.2% to 6.5..
Moreover, it appears that there is significant pent-up demand for travel. According to Airbnb: “More than half of those surveyed (54%) said they either already booked, are currently planning to travel, or expect to travel in 2021. This includes 57% of 18- to 29-year-olds, and 60% of 30- to 49-year-olds.”
So Airbnb’s growth is poised to accelerate. And all in all, ABNB stock should be a pretty good way to play the reopening trade, which seems to be a big focus for Wall Street now.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
