After months of seeing little to no activity, Airbnb (NASDAQ:ABNB) stock is poised to be a strong pandemic recovery play.
The vacation rental company was once considered a Silicon Valley darling, resulting in an impressive IPO that valued the company at over $100 billion. However, as travel came to a standstill so did rental bookings. ABNB stock slid 34% from its March highs and is trading at just $135 as of this writing.
However, with the economic recovery ahead, Airbnb is looking at a strong rebound. Airlines and hotels will see a boost in demand but are unlikely to reach their pre-Covid levels for at least a couple of years. Airbnb, on the other hand, will see a quicker recovery as people opt for destinations closer to home and less densely populated places.
As such, investors eager for exposure to the economic recovery will find this stock a great play.
Why I’m Bullish on ABNB Stock
With the markets overheating and the recent tech sell-off, investors may be tempted to put Airbnb stock in the sell bucket. However, as with all good investments, it’s worth considering the fundamental value that this investment offers in the long haul. Like many businesses, Airbnb took a major hit during the pandemic but weathered the storm with ease.
As travel came to a standstill last year, Airbnb’s bookings dropped by 85%. Management expected to see revenue dip by half, but the company ended the year with $3.4 billion in the books. That’s a 30% decline from 2019.
Coming into 2021, things are really looking up for Airbnb. In the first quarter of this year, the company reported a 5% increase in year-over-year revenue. That’s an impressive feat, given that it is still recovering from the pandemic.
Adding to this, Airbnb has a strong liquidity position, with positive cash flow from operations. The total cash balance and short-term investments in the books are three times higher than debt. This gives the vacation rental company plenty of room to expand its core operations this year. With better-than-expected earnings in its most recent quarter, Airbnb remains optimistic about its future growth. The company estimates revenues will grow by approximately 40% this year.
Finally, it’s worth considering the pent-up demand for travel. With over a third of the U.S. population vaccinated, people will be looking to travel this summer. However, many will want to avoid crowded places like hotels, making Airbnb’s rentals the perfect option. The company can capitalize on its worldwide presence and expand its current offering to benefit from the new age of travel.
Prices Are Low. Is It Time To Buy?
Despite a strong earnings report, ABNB stock was down 3% following the announcement. Many have attributed the decline to a limited chance of a rebound in the new normal. One part of this has to do with the increased competition in the space. According to Boris Schlossberg, managing director of FX strategy at BK Asset Management, Airbnb is facing a lot of competition in the vacation rental space.
Companies like VRBO, which is owned by Expedia Group (NASDAQ:EXPE), hold a key position in vacation rental properties and are giving Airbnb “a run for its money” says Schlossberg. On the other hand, high rental fees on the platform are discouraging prospective customers from choosing Airbnb.
While the timeline for a full recovery is still unclear, I think Airbnb is still worth betting on. We are still very much in the early transitory phases towards a new normal. When people feel safe to hop on planes once again, ABNB stock will see a reversal of fortunes. Until then shares are likely to pull back some more.
The current dip in prices signals a great buying opportunity for future growth.
The Bottom Line
Stocks have dropped from their vaccine-news highs but as we return to some sense of normalcy, ABNB stock is poised for a strong comeback. The company’s strong liquidity position coupled with its key position in the vacation rental market will serve as huge tailwinds. Airbnb remained resilient during the pandemic and is focused on future growth in the new normal.
Although a turnaround may not come right away, ABNB stock’s current price point makes it a great buy for long-term investors.