If anyone is due for a rebound this summer, it is Airbnb (NASDAQ:ABNB) stock.
The online marketplace for home stay vacation rentals saw its stock gallop out of the gate after a successful initial public offering last December. After hitting the Nasdaq exchange at just under $140, the share price rocketed 57% higher to $220 by mid-February. Sadly, it has been all downhill since then.
In the past 10 weeks, ABNB stock has slumped more than 20%. The steady decline has prompted fears that Airbnb stock might be headed back down to its IPO price, or lower.
However, with Covid-19 vaccines rolling out faster than expected, U.S. economic data showing gathering strength, and consumers again confident in spending on travel and leisure, there’s every reason to believe that ABNB stock will reverse course and move higher in this year’s second half.
Lock-Up Period Ends
While the red arrows might prompt some investors to wonder if there is something fundamentally wrong with Airbnb, it’s important to point out that much of the selling in ABNB stock came when the 90-day lock-up period following its IPO ended, enabling institutional investors to sell their shares and realize profits.
Sell-offs in stocks commonly occur once the post-IPO lock-up period expires and investors who bought stock before they hit the market are free to sell their shares. Much of the selling in Airbnb stock was to be expected after the company’s much hyped IPO at the end of last year.
Investors who remain bearish on the Airbnb story point out that the company has never been profitable and that it posted a gigantic net loss of $4.6 billion for all of 2020 as the global pandemic brought its business of helping people rent out their homes for money to a screeching halt.
But on closer examination, $3 billion of Airbnb’s loss last year was attributed to a one-time non-cash expense: stock-based compensation to employees ahead of its IPO. Again, to be expected before a stock market debut.
Much of Airbnb’s remaining $1.6 billion 2020 loss was due to heavy investments the company made in “product and development” or research and development as the company remains in hyper-growth mode. While it is true that Airbnb has never been profitable, its revenue between 2015 and 2019 increased five-fold.
Bookings and Outlook
Like all travel stocks, Airbnb had a rough go of it last year. Many analysts were surprised the company kept its IPO on track last year after the company’s bookings collapsed 72% compared to 2019 and it was forced to eliminate 25% of its workforce.
However, the outlook has been improving at Airbnb since last fall. The company reported in the fourth quarter of 2020 that its bookings were only down about 20% from the final quarter of 2019, a marked improvement from earlier in the year.
And, despite all the turmoil caused by the pandemic, Airbnb’s gross booking value last year still came in at $23.9 billion. The company’s booking began to recover last autumn as growing numbers of people began to book stays while working remotely, just to get a change of scene from their own house. Going forward, Airbnb says it has a massive growth opportunity ahead of it as it currently controls less than 1% of an addressable market it estimates to be worth $3.4 trillion annually.
If you’re still looking to be convinced of a bullish case for Airbnb, consider that a poll conducted by Tripadvisor (NASDAQ:TRIP) found that 67% of Americans plan to travel this summer, resulting in a boom in vacation rental searches and bookings.
Buy ABNB Stock
From what the economic indicators are showing, now is the time to buy stocks of companies that will benefit from the recovery in travel and leisure this summer. And few companies are as embedded in the travel recovery as Airbnb.
With the U.S. economy beginning to surge, discretionary spending will again be directed to travel and that will benefit Airbnb, a company that is still ramping up its business and expanding at a strong rate. The median price target that investors have on ABNB stock is $190 a share. The high price target is $245.
Buy shares now before the upswing begins in earnest.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
